--------------------------------
OMB APPROVAL
--------------------------------
OMB Number: 3235-0570 Expires:
August 31, 2011 Estimated
average burden hours per
response. . . . . . . . 18.9
--------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-04847
ECLIPSE FUNDS
(Exact name of Registrant as specified in charter)
51 Madison Avenue, New York, NY 10010
(Address of principal executive offices) (Zip code)
Marguerite E.H. Morrison, Esq.
169 Lackawanna Avenue
Parsippany, NJ 07054
(Name and address of agent for service)
Registrant's telephone number, including area code: (973) 394-4437
Date of fiscal year end: October 31
Date of reporting period: April 30, 2009
ITEM 1. REPORTS TO STOCKHOLDERS.
(MAINSTAY INVESTMENTS LOGO)
MAINSTAY
BALANCED FUND
Message from the President
and
Semiannual Report
Unaudited
April 30, 2009
MESSAGE FROM THE PRESIDENT
The six-month period ended April 30, 2009, proved to be a historically volatile
time for the U.S. economy. Earlier in the year, many financial companies faced
setbacks and market liquidity dried up. Fortunately, the U.S. Treasury, the
Federal Reserve and other central banks and agencies worked together in an
effort to restore investor confidence.
Gross domestic product continued to decline in the fourth quarter of 2008 and
the first quarter of 2009. Fortunately, first-quarter earnings reports for
several companies, especially financials, were not as bad as some had earlier
feared. A rally in the retailing industry suggested that consumer spending might
revive. And preliminary first-quarter data from the Bureau of Economic Analysis
showed that personal consumption expenditures helped soften the economy's rate
of decline in the first quarter of 2009.
Although the stock market rallied from late November through early January, it
then declined through early March, with some major market indexes and averages
reaching levels that investors hadn't seen in more than 12 years. By March 9,
2009, many investors felt that the market had reached its low point, and the
stock market gradually recovered a good deal of what it had lost--not enough,
however, to end the reporting period in positive territory.
In the bond market, the earlier flight toward low-risk investments softened as
the Federal Open Market Committee reduced the targeted federal funds rate to a
range between 0% and 0.25%. With strong government support, including the
promise of purchases by the Federal Reserve, the mortgage-backed and asset-
backed securities markets began to regain their footing. Trillions of dollars
were poured into the markets, risk aversion softened and higher-yielding
securities gained substantial ground. Indeed, most fixed-income sectors recorded
positive returns for the six-month reporting period. This trend was encouraging
news for bond investors.
Throughout the reporting period, the portfolio managers of the MainStay Funds
continued to pursue the investment objectives, strategies and processes of their
respective Funds. Some were able to identify opportunities, reposition Fund
holdings, or otherwise take advantage of a difficult market environment. With a
steadfast focus on long-term investment potential, our portfolio managers sought
to weather market volatility and maintain a positive outlook.
Investors concerned about recent market events might benefit from their example.
With careful investing, appropriate diversification, gradual adjustments,
continual reevaluation and ongoing assistance from a financial professional,
investors may be able to improve the way they pursue their long-range goals.
At MainStay, we are pleased to be a part of your investment program, and we hope
that you will continue to invest with us for many years to come. While past
performance is no guarantee of future results, we are encouraged when the
economy provides positive indicators. Like you, we look forward to better days
ahead.
Sincerely,
/s/ STEPHEN P. FISHER
Stephen P. Fisher
President
Not part of the Semiannual Report
(MAINSTAY INVESTMENTS LOGO)
MAINSTAY
BALANCED FUND
MainStay Funds
Semiannual Report
Unaudited
April 30, 2009
TABLE OF CONTENTS
<Table>
SEMIANNUAL REPORT
- ---------------------------------------------
INVESTMENT AND PERFORMANCE COMPARISON 5
- ---------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION AND
ANALYSIS 10
- ---------------------------------------------
PORTFOLIO OF INVESTMENTS 13
- ---------------------------------------------
FINANCIAL STATEMENTS 20
- ---------------------------------------------
NOTES TO FINANCIAL STATEMENTS 28
- ---------------------------------------------
BOARD CONSIDERATION AND APPROVAL OF NEW
SUBADVISORY AGREEMENT 36
- ---------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES AND
PROXY VOTING RECORD 38
- ---------------------------------------------
SHAREHOLDER REPORTS AND QUARTERLY
PORTFOLIO DISCLOSURE 38
INVESTMENT AND PERFORMANCE COMPARISON(1)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE, AND AS A RESULT, WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE INFORMATION CURRENT
TO THE MOST RECENT MONTH-END, PLEASE CALL 800-MAINSTAY (624-6782) OR VISIT
MAINSTAYINVESTMENTS.COM.
INVESTOR CLASS SHARES(2)--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- -------------------------------------------------------------
With sales charges -5.70% -27.15% -1.41% 2.37%
Excluding sales charges -0.22 -22.91 -0.28 2.95
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY BALANCED RUSSELL MIDCAP ML CORP RUSSELL MIDCAP
FUND VALUE INDEX GOVT 1-10 BALANCED COMPOSITE INDEX
----------------- -------------- --------- ------------------ --------------
4/30/99 9450 10000 10000 10000 10000
8729 9551 10159 9819 11601
10168 11423 11380 11461 11634
11103 12384 12194 12411 11552
10722 10714 13486 11910 9919
12815 14456 13759 14402 13436
13940 17391 14200 16324 15401
15560 21695 14342 18737 19469
17208 25959 15293 21421 22437
16390 22934 16420 20519 21016
4/30/09 12634 14503 16821 16023 13443
</Table>
CLASS A SHARES(3)--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- -------------------------------------------------------------
With sales charges -5.61% -27.00% -1.37% 2.38%
Excluding sales charges -0.12 -22.76 -0.25 2.96
</Table>
(With sales charges)
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY BALANCED RUSSELL MIDCAP ML CORP RUSSELL MIDCAP
FUND VALUE INDEX GOVT 1-10 BALANCED COMPOSITE INDEX
----------------- -------------- --------- ------------------ --------------
4/30/99 23625 25000 25000 25000 25000
21822 23878 25399 24547 29003
25420 28558 28449 28654 29085
27758 30961 30484 31026 28880
26805 26785 33714 29774 24798
32036 36139 34399 36005 33590
34851 43477 35499 40809 38502
38900 54237 35856 46841 48673
43019 64897 38233 53553 56093
40958 57334 41049 51298 52540
4/30/09 31638 36256 42053 40057 33607
</Table>
CLASS B SHARES(3)--MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- -------------------------------------------------------------
With sales charges -5.55% -27.27% -1.36% 2.18%
Excluding sales charges -0.61 -23.48 -1.03 2.18
</Table>
(With sales charges)
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY BALANCED RUSSELL MIDCAP ML CORP RUSSELL MIDCAP
FUND VALUE INDEX GOVT 1-10 BALANCED COMPOSITE INDEX
----------------- -------------- --------- ------------------ --------------
4/30/99 10000 10000 10000 10000 10000
9163 9551 10159 9819 11601
10596 11423 11380 11461 11634
11486 12384 12194 12411 11552
11011 10714 13486 11910 9919
13067 14456 13759 14402 13436
14112 17391 14200 16324 15401
15640 21695 14342 18737 19469
17159 25959 15293 21421 22437
16216 22934 16420 20519 21016
4/30/09 12408 14503 16821 16023 13443
</Table>
1. Performance tables and graphs do not reflect the deduction of taxes that a
shareholder would pay on distributions or Fund-share redemptions. Total
returns reflect maximum applicable sales charges explained in this paragraph,
change in share price, and reinvestment of dividend and capital gain
distributions. The graphs assume an initial investment of $25,000 for Class A
shares and $10,000 for all other classes and reflect the deduction of all
sales charges that would have applied for the period of investment. Class A
shares generally have a $25,000 minimum initial investment with no minimum
subsequent purchase amount. For investors that, in the aggregate, have assets
of $100,000 or more invested in any share classes of any of the MainStay
Funds, the minimum initial investment is $15,000. Investor Class shares and
Class A shares are sold with a maximum initial sales charge of 5.50% and an
annual 12b-1 fee of 0.25%. Class B shares are sold with no initial sales
charge, are subject to a contingent deferred sales charge ("CDSC") of up to
5.00% if redeemed within the first six years of purchase, and have an annual
12b-1 fee of 1.00%. Class C shares are sold with no initial sales charge, are
subject to a CDSC of 1.00% if redeemed within one year of purchase, and have
an annual 12b-1 fee of 1.00%. Class I shares are sold with no initial sales
charge or CDSC, have no annual 12b-1 fee, and are generally available to
corporate and institutional investors or individual investors with a minimum
initial investment of $5 million. Class R1 shares are sold with no initial
sales charge or CDSC and have no annual 12b-1 fee. Class R2 shares are sold
with no initial sales charge or CDSC and have an annual 12b-1 fee of 0.25%.
Class R1 and R2 shares are available only through
THE FOOTNOTES ON THE NEXT TWO PAGES ARE AN INTEGRAL PART OF THE TABLES AND
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
mainstayinvestments.com 5
CLASS C SHARES(4)--MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- -------------------------------------------------------------
With sales charges -1.54% -24.21% -1.03% 2.18%
Excluding sales charges -0.55 -23.45 -1.03 2.18
</Table>
(With sales charges)
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY BALANCED
FUND CLASS RUSSELL MIDCAP ML CORP BALANCED COMPOSITE RUSSELL MIDCAP
C VALUE INDEX GOVT 1-10 INDEX INDEX
----------------- -------------- --------- ------------------ --------------
4/30/99 10000 10000 10000 10000 10000
9167 9551 10159 9819 11601
10597 11423 11380 11461 11634
11488 12384 12194 12411 11552
11012 10714 13486 11910 9919
13071 14456 13759 14402 13436
14110 17391 14200 16324 15401
15639 21695 14342 18737 19469
17159 25959 15293 21421 22437
16216 22934 16420 20519 21016
4/30/09 12413 14503 16821 16023 13443
</Table>
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- ----------------------------------------------------
0.07% -22.53% 0.16% 3.30%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY BALANCED
FUND CLASS RUSSELL MIDCAP ML CORP BALANCED COMPOSITE RUSSELL MIDCAP
I VALUE INDEX GOVT 1-10 INDEX INDEX
----------------- -------------- --------- ------------------ --------------
4/30/99 10000 10000 10000 10000 10000
9257 9551 10159 9819 11601
10810 11423 11380 11461 11634
11834 12384 12194 12411 11552
11457 10714 13486 11910 9919
13728 14456 13759 14402 13436
15001 17391 14200 16324 15401
16822 21695 14342 18737 19469
18685 25959 15293 21421 22437
17860 22934 16420 20519 21016
4/30/09 13836 14503 16821 16023 13443
</Table>
CLASS R1 SHARES(3)--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- ----------------------------------------------------
0.02% -22.59% 0.05% 3.19%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY BALANCED
FUND CLASS RUSSELL MIDCAP ML CORP BALANCED COMPOSITE RUSSELL MIDCAP
R1 VALUE INDEX GOVT 1-10 INDEX INDEX
----------------- -------------- --------- ------------------ --------------
4/30/99 10000 10000 10000 10000 10000
9248 9551 10159 9819 11601
10788 11423 11380 11461 11634
11797 12384 12194 12411 11552
11410 10714 13486 11910 9919
13653 14456 13759 14402 13436
14900 17391 14200 16324 15401
16700 21695 14342 18737 19469
18525 25959 15293 21421 22437
17685 22934 16420 20519 21016
4/30/09 13690 14503 16821 16023 13443
</Table>
corporate-sponsored retirement programs, which include certain minimum
program requirements. Class R3 shares are sold with no initial sales charge
or CDSC, have an annual 12b-1 fee of 0.50%, and are available in certain
individual retirement accounts or in certain retirement plans. Performance
figures reflect certain fee waivers and/or expense limitations, without which
total returns may have been lower. These fee waivers and/or expense
limitations are contractual and may be modified or terminated only with the
approval of the Board of Trustees. The Manager may recoup the amount of
certain management fee waivers or expense reimbursements from the Fund
pursuant to the contract if such action does not cause the Fund to exceed
existing expense limitations and the recoupment is made within three years
after the year in which the Manager incurred the expense.
2. Performance figures for Investor Class shares, first offered on February 28,
2008, include the historical performance of Class A shares through February
27, 2008, adjusted for differences in certain contractual fees and expenses.
Unadjusted, the performance shown for Investor Class shares might have been
lower.
3. Performance figures for Class A, B, R1 and R2 shares, first offered on
January 1, 2004, include the historical performance of Class I shares through
December 31, 2003, adjusted for differences in certain contractual expenses
and fees. Unadjusted, the performance shown for Class A, B, R1 and R2 shares
might have been lower.
4. Performance figures for Class C shares, first offered on January 1, 2004,
include the historical performance of L Class shares (which were redesignated
as Class C shares on January 1, 2004) through December 31, 2003, and the
historical performance of Class I shares through December 29, 2002, adjusted
for differences in certain contractual expenses and fees. Unadjusted, the
performance shown for Class C shares might have been lower.
THE FOOTNOTES ON THE PRECEDING PAGE AND THE FOLLOWING PAGE ARE AN INTEGRAL PART
OF THE TABLES AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
6 MainStay Balanced Fund
CLASS R2 SHARES(3)--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- ----------------------------------------------------
-0.11% -22.78% -0.21% 2.94%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY BALANCED RUSSELL MIDCAP ML CORP RUSSELL MIDCAP
FUND VALUE INDEX GOVT 1-10 BALANCED COMPOSITE INDEX
----------------- -------------- --------- ------------------ --------------
4/30/99 10000 10000 10000 10000 10000
9227 9551 10159 9819 11601
10738 11423 11380 11461 11634
11714 12384 12194 12411 11552
11300 10714 13486 11910 9919
13495 14456 13759 14402 13436
14681 17391 14200 16324 15401
16411 21695 14342 18737 19469
18162 25959 15293 21421 22437
17297 22934 16420 20519 21016
4/30/09 13356 14503 16821 16023 13443
</Table>
CLASS R3 SHARES(5)--NO SALES CHARGES
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- ----------------------------------------------------
-0.24% -22.94% -0.44% 2.68%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY BALANCED RUSSELL MIDCAP ML CORP RUSSELL MIDCAP
FUND VALUE INDEX GOVT 1-10 BALANCED COMPOSITE INDEX
----------------- -------------- --------- ------------------ --------------
4/30/99 10000 10000 10000 10000 10000
9202 9551 10159 9819 11601
10681 11423 11380 11461 11634
11622 12384 12194 12411 11552
11185 10714 13486 11910 9919
13322 14456 13759 14402 13436
14470 17391 14200 16324 15401
16130 21695 14342 18737 19469
17804 25959 15293 21421 22437
16912 22934 16420 20519 21016
4/30/09 13032 14503 16821 16023 13443
</Table>
<Table>
<Caption>
BENCHMARK PERFORMANCE SIX ONE FIVE TEN
MONTHS YEAR YEARS YEARS
- ---------------------------------------------------------------------------------------------------------
Russell Midcap(R) Value Index(6) -6.14% -36.76% 0.06% 3.79%
Balanced Composite Index(7) -0.40 -21.91 2.16 4.83
Merrill Lynch Corporate & Government 1-10 Years Bond Index(8) 6.47 2.45 4.10 5.34
Russell Midcap(R) Index(9) -1.64 -36.03 0.01 3.00
Average Lipper mixed-asset target allocation growth fund(10) -1.74 -27.07 -0.58 0.44
</Table>
5. Performance figures for Class R3 shares, first offered to the public on
April 28, 2006, include the historical performance of Class I shares through
April 27, 2006, adjusted for differences in certain contractual expenses and
fees. Unadjusted, the performance shown for Class R3 shares might have been
lower.
6. The Russell Midcap(R) Value Index measures the performance of those Russell
Midcap(R) companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000(R) Value
Index. Total returns assume reinvestment of all dividends and capital gains.
The Russell Midcap(R) Value Index is the Fund's broad-based securities
market index for comparison purposes. An investment cannot be made directly
in an index.
7. The Balanced Composite Index is comprised of the Russell Midcap(R) Value
Index and the Merrill Lynch Corporate and Government 1-10 Years Bond Index
weighted 60%/40%, respectively. The Russell Midcap(R) Value Index measures
the performance of those Russell Midcap companies with lower price-to-book
ratios and lower forecasted growth values. The stocks are also members of
the Russell 1000(R) Value Index. Total returns assume reinvestment of all
dividends and capital gains. The Merrill Lynch Corporate and Government 1-10
Years Bond Index is a market capitalization-weighted index including U.S.
Government and fixed coupon domestic investment grade corporate bonds with
at least $100 million par amount outstanding. Total returns assume
reinvestment of all income and capital gains. An investment cannot be made
directly in an index.
8. The Merrill Lynch Corporate and Government 1-10 Years Bond Index is a market
capitalization-weighted index including U.S. Government and fixed coupon
domestic investment grade corporate bonds with at least $100 million par
amount outstanding. Total returns assume reinvestment of all income and
capital gains. An investment cannot be made directly in an index.
9. The Russell Midcap(R) Index measures the performance of the 800 smallest
companies in the Russell 1000(R) Index, and represents approximately 31% of
the total market capitalization of the Russell 1000(R) Index. Total returns
assume reinvestment of all dividends and capital gains. An investment cannot
be made directly in an index.
10. The average Lipper mixed-asset target allocation growth fund is
representative of funds that, by portfolio practice, maintain a mix of
between 60%-80% equity securities, with the remainder invested in bonds,
cash, and cash equivalents. This benchmark is a product of Lipper Inc.
Lipper Inc. is an independent monitor of fund performance. Results are based
on average total returns of similar funds with all dividend and capital gain
distributions reinvested.
THE FOOTNOTES ON THE PRECEDING TWO PAGES ARE AN INTEGRAL PART OF THE TABLES AND
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
mainstayinvestments.com 7
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY BALANCED FUND
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from November 1, 2008, to April 30,
2009, and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, exchange fees, and sales charges (loads) on
purchases (as applicable), and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses (as
applicable). This example is intended to help you understand your ongoing costs
(in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds. The example is based on an
investment of $1,000 made at the beginning of the six-month period and held for
the entire period from November 1, 2008, to April 30, 2009.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested, to estimate the expenses that
you paid during the six-months ended April 30, 2009. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 11/1/08 4/30/09 PERIOD(1) 4/30/09 PERIOD(1)
INVESTOR CLASS SHARES $1,000.00 $ 997.80 $ 7.43 $1,017.40 $ 7.50
- --------------------------------------------------------------------------------------------------------
CLASS A SHARES $1,000.00 $ 998.80 $ 6.34 $1,018.40 $ 6.41
- --------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $ 993.90 $11.12 $1,013.60 $11.23
- --------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $ 994.50 $11.13 $1,013.60 $11.23
- --------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,000.70 $ 4.66 $1,020.10 $ 4.71
- --------------------------------------------------------------------------------------------------------
CLASS R1 SHARES $1,000.00 $1,000.20 $ 5.16 $1,019.60 $ 5.21
- --------------------------------------------------------------------------------------------------------
CLASS R2 SHARES $1,000.00 $ 998.90 $ 6.39 $1,018.40 $ 6.46
- --------------------------------------------------------------------------------------------------------
CLASS R3 SHARES $1,000.00 $ 997.60 $ 7.63 $1,017.20 $7.70
- --------------------------------------------------------------------------------------------------------
1. Expenses are equal to the Fund's annualized expense ratio of each class
(1.50% for Investor Class, 1.28% for Class A, 2.25% for Class B and Class C,
0.94% for Class I, 1.04% for Class R1, 1.29% for Class R2 and 1.54% for Class
R3) multiplied by the average account value over the period, divided by 365
and multiplied by 181 (to reflect the one-half year period). The table above
represents the actual expenses incurred during the one-half year period.
8 MainStay Balanced Fund
PORTFOLIO COMPOSITION AS OF APRIL 30, 2009
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
Common Stocks 60.7
U.S. Government & Federal Agencies 23.2
Corporate Bonds 12.8
Yankee Bonds 1.6
Short-Term Investments 1.5
Mortgage-Backed Securities 0.3
Convertible Bond 0.0
Futures Contracts 0.0
Liabilities in Excess of Cash and Other
Assets (0.1)
</Table>
See Portfolio of Investments on page 13 for specific holdings within these
categories.
++ Less than one-tenth of a percent.
TOP TEN HOLDINGS OR ISSUERS HELD AS OF APRIL 30, 2009 (EXCLUDING SHORT-TERM
INVESTMENTS)
<Table>
1. United States Treasury Notes,
0.875%-4.125%, due 10/31/10-2/15/19
2. Federal Home Loan Mortgage Corporation,
1.50%-5.25%, due 10/18/10-4/18/16
3. Federal National Mortgage Association,
2.75%-5.50%, due 9/13/10-10/15/15
4. Federal Home Loan Bank, 4.50%-5.50%, due
8/14/13-8/13/14
5. Federal Home Loan Mortgage Corporation
(Mortgage Pass-Through Securities),
4.00%-5.50%, due 10/1/38-1/1/39
6. Aflac, Inc.
7. Sempra Energy
8. Liberty Media Corp. Entertainment Class
A
9. Unum Group
10. General Electric Co.
</Table>
mainstayinvestments.com 9
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
QUESTIONS ANSWERED BY PORTFOLIO MANAGERS TONY H. ELAVIA OF MADISON SQUARE
INVESTORS LLC, THE FUND'S SUBADVISOR AND THOMAS J. GIRARD OF NEW YORK LIFE
INVESTMENTS,(1) THE FUND'S MANAGER.
HOW DID MAINSTAY BALANCED FUND PERFORM RELATIVE TO ITS PEERS AND ITS BENCHMARK
DURING THE SIX MONTHS ENDED APRIL 30, 2009?
Excluding all sales charges, MainStay Balanced Fund returned -0.22% for Investor
Class shares, -0.12% for Class A shares, -0.61% for Class B shares and -0.55%
for Class C shares for the six months ended April 30, 2009. Over the same
period, Class I shares returned 0.07%, Class R1 shares returned 0.02%, Class R2
shares returned -0.11% and Class R3 shares returned -0.24%. All share classes
outperformed the -1.74% return of the average Lipper(2) mixed-asset target
allocation growth fund and the -6.14% return of the Russell Midcap(R) Value
Index.(3) Investor Class, Class A, Class I, Class R1, Class R2 and Class R3
shares outperformed--and Class B and Class C shares underperformed--the -0.40%
return of the Fund's Balanced Composite Index(4) for the six months ended April
30, 2009. The Russell Midcap(R) Value Index is the Fund's broad-based
securities-market index. The Balanced Composite Index is a secondary benchmark
of the Fund. See pages 5 and 6 for Fund returns with sales charges.
WHAT FACTORS WERE RESPONSIBLE FOR THE FUND'S RELATIVE PERFORMANCE DURING THE
REPORTING PERIOD?
The most significant factors that affected the equity portion of the Fund were
the extreme volatility of the equity markets, the aggressive moves by the
Federal Reserve to expand the money supply, and the investors' reactions to
these efforts. The equity portion of the Fund benefited from its allocations to
mid-cap stocks and large-cap stocks. The equity portion of the Fund performed
well relative to the Russell Midcap(R) Value Index because of reduced exposure
to the financials sector, a less pronounced bias toward value stocks than the
benchmark and successful application of security-selection strategies.
The fixed-income portion of the Fund outperformed the Merrill Lynch Corporate &
Government 1-10 Years Bond Index(5) during the reporting period. Appropriate
positioning in the mortgage-backed securities and investment-grade bond sectors
contributed to relative performance. Duration(6) and yield-curve(7) decisions
were also positive contributors to the results of the fixed-income portion of
the Fund relative to its benchmark.
DURING THE REPORTING PERIOD, WHICH EQUITY SECTORS WERE THE STRONGEST
CONTRIBUTORS TO THE FUND'S PERFORMANCE AND WHICH EQUITY SECTORS WERE THE
WEAKEST?
The equity portion of the Fund utilizes a proprietary quantitative investment
process that focuses on a combination of valuation, growth and momentum factors.
Sector holdings are a residual of the Fund's investment process and are not a
product of top-down, macroeconomic analysis.
On an absolute basis, the equity sectors that made the strongest contributions
to the Fund's returns were consumer discretionary, information technology and
telecommunication services. However, our underweight position in the consumer
discretionary sector detracted modestly from the Fund's performance relative to
the Russell Midcap(R) Value Index. Our overweight positions in information
technology and telecommunication services contributed positively to the Fund's
relative performance.
- ----------
Investments in common stocks and other equity securities are particularly
subject to the risk of changing economic, stock market, industry and company
conditions and the risks inherent in management's ability to anticipate such
changes that can adversely affect the value of the Fund's holdings. The
principal risk of investing in value stocks is that they may never reach what
the portfolio manager believes is their full value or that they may even go down
in value. The Fund invests in mid-cap stocks, which may be more volatile and
less liquid than the securities of larger companies. The values of debt
securities fluctuate depending on various factors, including interest rates,
issuer creditworthiness, liquidity, market conditions and maturities. The Fund
invests in foreign securities, which may be subject to greater risks than U.S.
investments, including currency fluctuations, less-liquid trading markets,
greater price volatility, political and economic instability, less publicly
available information, and changes in tax or currency laws or monetary policy.
These risks are likely to be greater in emerging markets than in developed
markets. The principal risk of mortgage-related and asset-backed securities is
that the underlying debt may be prepaid ahead of schedule if interest rates
fall, thereby reducing the value of the Fund's investments. If interest rates
rise, there may be fewer prepayments, which would cause the average bond
maturity to rise and increase the potential for the Fund to lose money. The
Fund's use of securities lending presents the risk of default by the borrower,
which may also result in a loss to the Fund.
1. "New York Life Investments" is a service mark used by New York Life
Investment Management LLC.
2. See footnote on page 7 for more information on Lipper Inc.
3. See footnote on page 7 for more information on the Russell Midcap(R) Value
Index.
4. See footnote on page 7 for more information on the Fund's Balanced Composite
Index.
5. See footnote on page 7 for more information on the Merrill Lynch Corporate &
Government 1-10 Years Bond Index.
6. Duration is a measure of the price sensitivity of a fixed-income investment
to changes in interest rates. Duration is expressed as a number of years and
is considered a more accurate sensitivity gauge than average maturity.
7. The yield curve is a line that plots the yields of various securities of
similar quality--typically U.S. Treasury issues--across a range of
maturities. The U.S. Treasury yield curve serves as a benchmark for other
debt and is used in economic forecasting.
10 MainStay Balanced Fund
From a sector standpoint, the weakest contributors to the Fund's returns were
consumer staples, financials and energy. Our significant underweight position in
financials helped the Fund's performance relative to the Russell Midcap(R) Value
Index.
DURING THE REPORTING PERIOD, WHICH STOCKS WERE THE STRONGEST CONTRIBUTORS TO THE
FUND'S ABSOLUTE PERFORMANCE AND WHICH STOCKS WERE THE WEAKEST?
On an absolute basis, the strongest individual contributors to the performance
of the equity portion of the Fund were telecommunication firm Sprint Nextel, TV
entertainment distributor Liberty Media and financial firm Goldman Sachs Group.
The stocks that most severely detracted from the Fund's absolute performance
included energy company Sunoco and financial companies Wells Fargo and
Citigroup.
DID THE EQUITY PORTION OF THE FUND MAKE ANY SIGNIFICANT PURCHASES OR SALES
DURING THE REPORTING PERIOD?
The equity portion of the Fund selects securities using a proprietary investment
process, which seeks stocks that have attractive relative valuations, strong
operating results and positive price trends. Among the stocks that fit the
Fund's purchase criteria during the reporting period were telecommunications
provider AT&T and retailer Wal-Mart Stores. Among the stocks the Fund trimmed
because of unattractive valuations, weak operating results and deteriorating
price trends were computer firm Dell and financial company BlackRock.
HOW DID SECTOR WEIGHTINGS CHANGE IN THE EQUITY PORTION OF THE FUND DURING THE
REPORTING PERIOD?
Weighting changes in the equity portion of the Fund resulted from a combination
of stock performance and the Fund's proprietary quantitative security- selection
process. During the reporting period, we increased the Fund's weighting in the
utilities sector, but maintained a significantly underweight position relative
to the Russell Midcap(R) Value Index. We modestly increased the Fund's weighting
in the telecommunication services sector.
During the reporting period, we significantly decreased the Fund's weighting in
health care from overweight relative to the Russell Midcap(R) Value Index in the
fall of 2008 to slightly underweight in the spring of 2009. We also decreased
the Fund's weighting in industrials during the reporting period.
HOW WAS THE EQUITY PORTION OF THE FUND POSITIONED AT THE END OF THE REPORTING
PERIOD?
As of April 30, 2009, the equity portion of the Fund was overweight relative to
the Russell Midcap(R) Value Index in information technology and industrials. As
of the same date, the equity portion of the Fund was underweight relative to the
benchmark in materials and utilities and significantly underweight in
financials.
WHAT FACTORS AFFECTED THE FIXED-INCOME PORTION OF THE FUND DURING THE REPORTING
PERIOD?
The economic environment remained weak and the fixed-income markets remained
unsettled as continued turmoil in the financial system--along with a weakening
economy--gave investors little reason for confidence. Sharp cuts in consumer
spending during the last two months of 2008 led to lower manufacturing output
and reduced business spending. In the first four months of 2009, the economy
displayed some hints of stabilizing. Consumer spending exceeded expectations,
inventory levels may have undergone their necessary adjustments and early signs
suggest that the labor market may not be deteriorating as rapidly as in prior
months.
In early March and throughout the month of April, riskier asset classes such as
high-yield bonds and leveraged loans rebounded. Credit spreads(8) on some
financial institution paper also improved, helping to provide a measure of
stabilization in the fixed-income markets.
The Federal Reserve continued its easing of interest rates by lowering the
federal funds target rate to a range of 0% to 0.25%; by purchasing mortgage-
backed securities, agency debentures and U.S. Treasury securities; and by
supporting the capital markets through a variety of programs. Interest rates
were very volatile during the six-month reporting period as they first moved to
new lows in December 2008 and then rose sharply in January and February 2009,
before settling into a narrow range.
- ----------
8. The terms "spread" and "yield spread" may refer to the difference in yield
between a security or type of security and comparable U.S. Treasury issues.
The terms may also refer to the difference in yield between two specific
securities or types of securities at a given time.
mainstayinvestments.com 11
HOW DID THE FIXED-INCOME PORTION OF THE FUND RESPOND TO THESE MARKET FORCES?
In the fixed-income portion of the Fund, we reduced investment-grade bond
exposure, specifically to financial institutions, and increased the Fund's
weightings in Treasury and agency securities. This positioning added to the
Fund's performance relative to the Merrill Lynch Corporate & Government 1-10
Years Bond Index. The Fund's allocations to residential mortgage-backed and
commercial mortgage-backed securities added to performance relative to the
benchmark.
- ----------
The opinions expressed are those of the portfolio managers as of the date of
this report and are subject to change. There is no guarantee that any forecast
made will come to pass. This material does not constitute investment advice and
is not intended as an endorsement of any specific investment.
12 MainStay Balanced Fund
PORTFOLIO OF INVESTMENTS+++ APRIL 30, 2009 UNAUDITED
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LONG-TERM BONDS 37.9%+
CONVERTIBLE BOND 0.0%++
- ----------------------------------------------------------------
INTERNET 0.0%++
At Home Corp.
4.75%, due 12/31/49
(a)(b)(c)(d) $ 177,810 $ 18
-------------
Total Convertible Bond
(Cost $13,326) 18
-------------
CORPORATE BONDS 12.8%
- ----------------------------------------------------------------
AEROSPACE & DEFENSE 1.4%
Boeing Co.
6.875%, due 3/15/39 1,500,000 1,563,385
Lockheed Martin Corp.
7.65%, due 5/1/16 3,000,000 3,403,281
United Technologies Corp.
7.125%, due 11/15/10 3,130,000 3,346,111
-------------
8,312,777
-------------
BANKS 1.3%
Bank of America Corp.
5.75%, due 12/1/17 1,000,000 816,956
7.80%, due 2/15/10 1,500,000 1,518,829
7.80%, due 9/15/16 1,500,000 1,032,920
HSBC Bank USA N.A.
5.875%, due 11/1/34 1,000,000 877,253
Keycorp
6.50%, due 5/14/13 400,000 380,051
Mellon Funding Corp.
6.375%, due 2/15/10 1,960,000 2,000,331
PNC Bank N.A.
6.875%, due 4/1/18 1,230,000 1,171,406
-------------
7,797,746
-------------
BEVERAGES 0.3%
Anheuser-Busch Cos., Inc.
7.50%, due 3/15/12 1,500,000 1,585,590
-------------
CHEMICALS 0.2%
Monsanto Co.
7.375%, due 8/15/12 1,000,000 1,117,573
-------------
DIVERSIFIED FINANCIAL SERVICES 2.0%
Bear Stearns Cos., Inc. (The)
5.30%, due 10/30/15 2,000,000 1,852,648
CIT Group, Inc.
4.75%, due 12/15/10 655,000 484,900
Citigroup, Inc.
5.85%, due 8/2/16 1,500,000 1,245,225
6.50%, due 1/18/11 500,000 483,463
General Electric Capital
Corp.
6.875%, due 1/10/39 1,650,000 1,292,838
Goldman Sachs Group, Inc.
(The)
6.65%, due 5/15/09 1,180,000 1,181,939
7.35%, due 10/1/09 1,000,000 1,021,975
HSBC Finance Corp.
6.375%, due 11/27/12 1,000,000 937,184
JPMorgan Chase & Co.
2.625%, due 12/1/10 (e) 2,000,000 2,044,548
5.25%, due 5/1/15 1,000,000 923,813
-------------
11,468,533
-------------
ELECTRIC 1.9%
CenterPoint Energy Houston
Electric LLC
7.00%, due 3/1/14 1,250,000 1,328,838
Consolidated Edison Co. of
New York
7.50%, due 9/1/10 3,000,000 3,190,701
Duke Energy Ohio, Inc.
5.45%, due 4/1/19 1,000,000 1,032,873
Interstate Power & Light Co.
6.625%, due 8/1/09 1,311,000 1,319,802
Kansas City Power & Light Co.
7.15%, due 4/1/19 1,000,000 1,019,502
Pacificorp
6.00%, due 1/15/39 750,000 749,714
Peco Energy Co.
5.00%, due 10/1/14 2,450,000 2,468,223
-------------
11,109,653
-------------
ELECTRICAL COMPONENTS & EQUIPMENT 0.3%
Emerson Electric Co.
6.125%, due 4/15/39 1,500,000 1,505,076
-------------
FOOD 0.8%
Campbell Soup Co.
6.75%, due 2/15/11 1,500,000 1,617,570
ConAgra Foods, Inc.
7.00%, due 4/15/19 600,000 637,492
Kellogg Co.
Series B
6.60%, due 4/1/11 2,000,000 2,132,204
-------------
4,387,266
-------------
</Table>
+ Percentages indicated are based on Fund net assets.
V Among the Fund's 10 largest holdings or issuers held, as of April 30, 2009,
excluding short-term investments. May be subject to change daily.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
13
PORTFOLIO OF INVESTMENTS APRIL 30, 2009 UNAUDITED (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
GAS 0.1%
Atmos Energy Corp.
8.50%, due 3/15/19 $ 485,000 $ 514,004
-------------
HEALTH CARE--PRODUCTS 0.4%
Johnson & Johnson
6.625%, due 9/1/09 2,371,000 2,410,264
-------------
HEALTH CARE--SERVICES 0.3%
Roche Holdings, Inc.
5.00%, due 3/1/14 (f) 1,500,000 1,572,471
-------------
HOUSEHOLD PRODUCTS & WARES 0.5%
Kimberly-Clark Corp.
5.00%, due 8/15/13 3,000,000 3,129,891
-------------
INSURANCE 0.3%
Allstate Corp. (The)
7.20%, due 12/1/09 1,900,000 1,933,717
-------------
MACHINERY--DIVERSIFIED 0.4%
Deere & Co.
7.85%, due 5/15/10 2,308,000 2,388,748
-------------
MEDIA 0.4%
COX Communications, Inc.
8.375%, due 3/1/39 (f) 1,150,000 1,116,053
Time Warner Cable, Inc.
6.75%, due 7/1/18 250,000 252,962
8.25%, due 4/1/19 710,000 784,664
-------------
2,153,679
-------------
MISCELLANEOUS--MANUFACTURING 0.1%
ITT Corp.
6.125%, due 5/1/19 400,000 410,664
-------------
OIL & GAS 0.6%
Chevron Corp.
3.95%, due 3/3/14 1,500,000 1,537,064
ConocoPhillips
8.75%, due 5/25/10 1,940,000 2,081,096
-------------
3,618,160
-------------
PIPELINES 0.1%
Plains All American Pipeline,
L.P.
8.75%, due 5/1/19 800,000 820,209
-------------
REAL ESTATE INVESTMENT TRUSTS 0.1%
ERP Operating, L.P.
5.25%, due 9/15/14 922,000 795,148
-------------
TELECOMMUNICATIONS 1.2%
AT&T, Inc.
6.55%, due 2/15/39 750,000 721,288
Southwestern Bell Telephone
Corp.
7.00%, due 7/1/15 3,000,000 3,164,163
Verizon Communications, Inc.
7.35%, due 4/1/39 1,000,000 1,036,842
Verizon Wireless Capital LLC
5.55%, due 2/1/14 (f) 2,000,000 2,098,056
-------------
7,020,349
-------------
TRANSPORTATION 0.1%
FedEx Corp.
8.00%, due 1/15/19 750,000 811,914
-------------
Total Corporate Bonds
(Cost $75,363,750) 74,863,432
-------------
MORTGAGE-BACKED SECURITIES 0.3%
- ----------------------------------------------------------------
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE OBLIGATIONS) 0.3%
Bear Stearns Commercial
Mortgage Securities
Series 2004-PWR4, Class A3
5.468%, due 6/11/41 800,000 717,922
JP Morgan Chase Commercial
Mortgage Securities Corp.
Series 2005-CB12, Class A4
4.895%, due 9/12/37 400,000 348,169
Morgan Stanley Capital I
Series 2006-T21, Class A4
5.162%, due 10/12/52 800,000 664,403
-------------
Total Mortgage-Backed
Securities
(Cost $1,697,950) 1,730,494
-------------
U.S. GOVERNMENT & FEDERAL AGENCIES 23.2%
- ----------------------------------------------------------------
V FEDERAL HOME LOAN BANK 1.3%
4.50%, due 9/16/13 2,500,000 2,716,045
5.125%, due 8/14/13 2,500,000 2,779,887
5.50%, due 8/13/14 2,000,000 2,267,130
-------------
7,763,062
-------------
V FEDERAL HOME LOAN MORTGAGE CORPORATION 4.0%
1.50%, due 1/7/11 2,500,000 2,513,462
3.25%, due 2/25/11 2,000,000 2,067,600
3.50%, due 5/29/13 2,000,000 2,103,234
3.875%, due 6/29/11 5,500,000 5,790,543
4.125%, due 10/18/10 2,000,000 2,094,314
</Table>
14 MainStay Balanced Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
U.S. GOVERNMENT & FEDERAL AGENCIES (CONTINUED)
FEDERAL HOME LOAN MORTGAGE CORPORATION (CONTINUED)
4.75%, due 1/18/11 $ 2,000,000 $ 2,120,484
4.75%, due 1/19/16 2,000,000 2,194,156
5.125%, due 4/18/11 2,000,000 2,145,170
5.25%, due 4/18/16 2,000,000 2,241,742
-------------
23,270,705
-------------
V FEDERAL HOME LOAN MORTGAGE CORPORATION
(MORTGAGE PASS-THROUGH SECURITIES) 1.3%
4.00%, due 1/1/39 3,481,203 3,472,500
4.50%, due 1/1/39 2,453,247 2,496,530
5.50%, due 10/1/38 1,337,162 1,384,471
-------------
7,353,501
-------------
V FEDERAL NATIONAL MORTGAGE ASSOCIATION 2.5%
2.75%, due 3/13/14 2,000,000 2,022,348
3.625%, due 8/15/11 2,000,000 2,098,596
4.375%, due 9/13/10 2,000,000 2,090,294
4.375%, due 10/15/15 2,000,000 2,152,006
4.50%, due 2/15/11 2,000,000 2,116,706
4.875%, due 5/18/12 2,000,000 2,182,106
5.50%, due 3/15/11 2,000,000 2,157,876
-------------
14,819,932
-------------
UNITED STATES TREASURY BOND 0.1%
4.50%, due 5/15/38 730,000 785,549
-------------
V UNITED STATES TREASURY NOTES 14.0%
0.875%, due 12/31/10 3,200,000 3,203,127
0.875%, due 1/31/11 7,015,000 7,020,752
0.875%, due 2/28/11 7,400,000 7,400,888
0.875%, due 3/31/11 6,100,000 6,100,000
0.875%, due 4/30/11 1,050,000 1,049,097
1.125%, due 12/15/11 4,500,000 4,490,154
1.25%, due 11/30/10 15,245,000 15,359,947
1.375%, due 4/15/12 3,000,000 3,000,930
1.50%, due 10/31/10 4,500,000 4,551,327
1.75%, due 3/31/14 1,050,000 1,038,188
1.875%, due 2/28/14 130,000 129,340
2.00%, due 11/30/13 12,925,000 12,981,547
2.75%, due 10/31/13 7,185,000 7,458,928
2.75%, due 2/15/19 3,175,000 3,075,273
4.00%, due 8/15/18 2,015,000 2,161,716
4.125%, due 5/15/15 3,000,000 3,309,375
-------------
82,330,589
-------------
Total U.S. Government &
Federal Agencies
(Cost $135,293,911) 136,323,338
-------------
YANKEE BONDS 1.6% (G)
- ----------------------------------------------------------------
MINING 0.5%
BHP Billiton Finance USA,
Ltd.
5.50%, due 4/1/14 1,250,000 1,316,085
Rio Tinto Finance USA, Ltd.
8.95%, due 5/1/14 1,800,000 1,863,158
-------------
3,179,243
-------------
OIL & GAS 0.3%
Shell International Finance
B.V.
4.00%, due 3/21/14 1,500,000 1,546,838
-------------
PHARMACEUTICALS 0.1%
Novartis Securities
Investment, Ltd.
5.125%, due 2/10/19 900,000 921,533
-------------
PIPELINES 0.2%
TransCanada Pipelines, Ltd.
7.625%, due 1/15/39 975,000 1,067,319
-------------
TELECOMMUNICATIONS 0.5%
Deutsche Telekom
International Finance B.V.
6.75%, due 8/20/18 1,500,000 1,560,218
Vodafone Group PLC
5.625%, due 2/27/17 1,300,000 1,308,122
-------------
2,868,340
-------------
Total Yankee Bonds
(Cost $9,195,984) 9,583,273
-------------
Total Long-Term Bonds
(Cost $221,564,921) 222,500,555
-------------
<Caption>
SHARES
COMMON STOCKS 60.7%
- ----------------------------------------------------------------
AEROSPACE & DEFENSE 1.4%
General Dynamics Corp. 18,784 $ 970,569
L-3 Communications Holdings,
Inc. 7,710 587,116
Lockheed Martin Corp. 43,837 3,442,520
Northrop Grumman Corp. 72,300 3,495,705
-------------
8,495,910
-------------
AGRICULTURE 1.8%
Altria Group, Inc. 108,651 1,774,271
Archer-Daniels-Midland Co. 54,335 1,337,728
Bunge, Ltd. 44,554 2,139,037
Lorillard, Inc. 63,811 4,028,388
Philip Morris International,
Inc. 34,008 1,231,090
-------------
10,510,514
-------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
15
PORTFOLIO OF INVESTMENTS APRIL 30, 2009 UNAUDITED (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
APPAREL 0.1%
NIKE, Inc. Class B 5,710 $ 299,604
-------------
AUTO PARTS & EQUIPMENT 0.1%
TRW Automotive Holdings Corp.
(h) 27,000 232,740
WABCO Holdings, Inc. 24,203 387,006
-------------
619,746
-------------
BANKS 0.6%
Capital One Financial Corp. 29,426 492,591
M&T Bank Corp. 3,155 165,480
Regions Financial Corp. 22,279 100,033
U.S. Bancorp 6,946 126,556
Wells Fargo & Co. 135,995 2,721,260
-------------
3,605,920
-------------
BIOTECHNOLOGY 0.6%
Amgen, Inc. (h) 71,639 3,472,342
-------------
CHEMICALS 1.6%
Ashland, Inc. 50,144 1,101,162
CF Industries Holdings, Inc. 36,857 2,655,547
Comerica, Inc. 26,589 557,837
Monsanto Co. 24,481 2,078,192
Mosaic Co. (The) 21,528 870,808
Sherwin-Williams Co. (The) 22,910 1,297,622
Terra Industries, Inc. 23,540 623,810
-------------
9,184,978
-------------
COMMERCIAL SERVICES 0.8%
Host Hotels & Resorts, Inc. 152,446 1,172,310
Moody's Corp. 111,052 3,278,255
-------------
4,450,565
-------------
COMPUTERS 3.1%
Affiliated Computer Services,
Inc. Class A (h) 78,411 3,793,524
Apple, Inc. (h) 4,833 608,136
Computer Sciences Corp. (h) 23,822 880,461
Dell, Inc. (h) 324,723 3,773,281
Hewlett-Packard Co. 106,877 3,845,435
International Business
Machines Corp. 35,723 3,686,971
Western Digital Corp. (h) 70,529 1,658,842
-------------
18,246,650
-------------
COSMETICS & PERSONAL CARE 1.4%
Avon Products, Inc. 50,427 1,147,719
Colgate-Palmolive Co. 54,700 3,227,300
Procter & Gamble Co. (The) 73,298 3,623,853
-------------
7,998,872
-------------
DIVERSIFIED FINANCIAL SERVICES 5.0%
Ameriprise Financial, Inc. 26,547 699,514
BlackRock, Inc. 26,118 3,826,809
Citigroup, Inc. 1,416,179 4,319,346
CME Group, Inc. 16,441 3,639,215
Discover Financial Services 71,263 579,368
Goldman Sachs Group, Inc.
(The) 35,479 4,559,052
IntercontinentalExchange,
Inc. (h) 26,232 2,297,923
Invesco, Ltd. 110,297 1,623,572
Morgan Stanley 144,444 3,414,656
T. Rowe Price Group, Inc. 48,417 1,865,023
TD Ameritrade Holding Corp.
(h) 168,662 2,683,412
-------------
29,507,890
-------------
ELECTRIC 3.1%
AES Corp. (The) (h) 512,214 3,621,353
Alliant Energy Corp. 74,598 1,668,011
American Electric Power Co.,
Inc. 162,451 4,285,457
DTE Energy Corp. 74,088 2,190,782
Edison International 91,500 2,608,665
FPL Group, Inc. 22,711 1,221,625
Mirant Corp. (h) 209,854 2,671,442
-------------
18,267,335
-------------
ELECTRICAL COMPONENTS & EQUIPMENT 0.4%
Emerson Electric Co. 66,919 2,277,923
-------------
ENGINEERING & CONSTRUCTION 0.6%
Fluor Corp. 36,033 1,364,570
Shaw Group, Inc. (The) (h) 62,724 2,103,136
-------------
3,467,706
-------------
FOOD 1.5%
H.J. Heinz Co. 103,623 3,566,704
Kroger Co. (The) 58,912 1,273,677
Safeway, Inc. 137,708 2,719,733
SUPERVALU, Inc. 85,739 1,401,833
-------------
8,961,947
-------------
FOREST PRODUCTS & PAPER 0.2%
International Paper Co. 99,400 1,258,404
-------------
GAS 1.2%
Energen Corp. 29,681 1,072,078
NiSource, Inc. 100,292 1,102,209
V Sempra Energy 108,105 4,974,992
-------------
7,149,279
-------------
HEALTH CARE--PRODUCTS 0.8%
Becton, Dickinson & Co. 2,811 170,009
Johnson & Johnson 36,457 1,908,889
</Table>
16 MainStay Balanced Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
HEALTH CARE--PRODUCTS (CONTINUED)
Medtronic, Inc. 9,163 $ 293,216
St. Jude Medical, Inc. (h) 72,377 2,426,077
-------------
4,798,191
-------------
HEALTH CARE--SERVICES 0.7%
Quest Diagnostics, Inc. 52,829 2,711,713
WellPoint, Inc. (h) 39,527 1,690,174
-------------
4,401,887
-------------
HOME BUILDERS 0.0%++
Toll Brothers, Inc. (h) 2,884 58,430
-------------
INSURANCE 6.1%
V Aflac, Inc. 182,257 5,265,405
American Financial Group,
Inc. 105,383 1,852,633
Arch Capital Group, Ltd. (h) 41,905 2,421,271
Assurant, Inc. 91,771 2,242,883
Axis Capital Holdings, Ltd. 110,513 2,723,040
Chubb Corp. (The) 1,616 62,943
CIGNA Corp. 225,427 4,443,166
MetLife, Inc. 128,528 3,823,708
Principal Financial Group,
Inc. 92,276 1,507,790
Prudential Financial, Inc. 137,132 3,960,372
Reinsurance Group of America,
Inc. Class B 58,952 1,874,084
Torchmark Corp. 6,199 181,817
Transatlantic Holdings, Inc. 11,425 433,350
V Unum Group 300,437 4,909,141
-------------
35,701,603
-------------
INTERNET 1.0%
eBay, Inc. (h) 118,230 1,947,248
Google, Inc. Class A (h) 9,633 3,814,379
-------------
5,761,627
-------------
IRON & STEEL 0.5%
Reliance Steel & Aluminum
Co. 75,610 2,663,740
-------------
MACHINERY--DIVERSIFIED 0.7%
Cummins, Inc. 130,165 4,425,610
-------------
MEDIA 4.0%
Apollo Group, Inc. Class A
(h) 48,514 3,053,956
CBS Corp. Class B 518,151 3,647,783
Comcast Corp. Class A 258,401 3,994,880
Dish Network Corp. Class A
(h) 156,936 2,079,402
V Liberty Media Corp.
Entertainment Class A (h) 201,812 4,914,122
Time Warner Cable, Inc. 35,360 1,139,653
Walt Disney Co. (The) 178,788 3,915,457
Washington Post Co. Class B 2,038 853,087
-------------
23,598,340
-------------
METAL FABRICATE & HARDWARE 0.5%
Precision Castparts Corp. 41,534 3,109,235
-------------
MINING 0.2%
Freeport-McMoRan Copper &
Gold, Inc. Class B 30,655 1,307,436
-------------
MISCELLANEOUS--MANUFACTURING 2.9%
Dover Corp. 15,772 485,462
Eaton Corp. 84,179 3,687,040
V General Electric Co. 369,847 4,678,565
Honeywell International,
Inc. 44,481 1,388,252
ITT Corp. 84,520 3,466,165
John Bean Technologies Corp. 43,291 477,067
Parker Hannifin Corp. 57,989 2,629,801
-------------
16,812,352
-------------
OIL & GAS 4.8%
Chevron Corp. 58,245 3,849,995
ConocoPhillips 80,666 3,307,306
ENSCO International, Inc. 131,075 3,706,801
ExxonMobil Corp. 58,112 3,874,327
Marathon Oil Corp. 25,477 756,667
Murphy Oil Corp. 90,111 4,299,196
Occidental Petroleum Corp. 64,277 3,618,152
Pioneer Natural Resources
Co. 88,290 2,041,265
Questar Corp. 20,507 609,468
Sunoco, Inc. 89,657 2,376,807
Valero Energy Corp. 1,116 22,141
-------------
28,462,125
-------------
PACKAGING & CONTAINERS 0.3%
Crown Holdings, Inc. (h) 69,347 1,529,101
Sonoco Products Co. 10,229 249,690
-------------
1,778,791
-------------
PHARMACEUTICALS 2.2%
Abbott Laboratories 30,242 1,265,628
AmerisourceBergen Corp. 103,935 3,496,373
Forest Laboratories, Inc. (h) 180,683 3,919,014
Herbalife, Ltd. 20,419 404,705
Pfizer, Inc. 189,189 2,527,565
Sepracor, Inc. (h) 80,075 1,137,866
Watson Pharmaceuticals, Inc.
(h) 4,608 142,571
-------------
12,893,722
-------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
17
PORTFOLIO OF INVESTMENTS APRIL 30, 2009 UNAUDITED (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS 0.1%
CapitalSource, Inc. 21,399 $ 66,123
CBL & Associates Properties,
Inc. 74,677 592,935
Public Storage 1,630 108,982
-------------
768,040
-------------
RETAIL 3.7%
AutoZone, Inc. (h) 13,417 2,232,455
Big Lots, Inc. (h) 118,081 3,263,759
Coach, Inc. (h) 158,750 3,889,375
Gap, Inc. (The) 138,458 2,151,637
Polo Ralph Lauren Corp. 29,686 1,598,294
Ross Stores, Inc. 75,404 2,860,828
TJX Cos., Inc. 30,198 844,638
Wal-Mart Stores, Inc. 76,188 3,839,875
Walgreen Co. 20,144 633,126
Yum! Brands, Inc. 9,095 303,318
-------------
21,617,305
-------------
SEMICONDUCTORS 0.7%
Intel Corp. 256,667 4,050,205
-------------
SOFTWARE 2.5%
Activision Blizzard, Inc. (h) 352,014 3,791,191
BMC Software, Inc. (h) 86,271 2,991,015
Microsoft Corp. 190,091 3,851,244
Oracle Corp. 197,040 3,810,754
-------------
14,444,204
-------------
TELECOMMUNICATIONS 4.5%
American Tower Corp. Class A
(h) 55,382 1,758,932
AT&T, Inc. 150,761 3,862,497
CenturyTel, Inc. 133,492 3,624,308
Cisco Systems, Inc. (h) 212,864 4,112,533
Corning, Inc. 50,432 737,316
Juniper Networks, Inc. (h) 119,662 2,590,682
PG&E Corp. 73,153 2,715,439
Sprint Nextel Corp. (h) 943,241 4,112,531
Verizon Communications, Inc. 87,388 2,651,352
-------------
26,165,590
-------------
TOYS, GAMES & HOBBIES 0.3%
Hasbro, Inc. 70,841 1,888,621
-------------
TRANSPORTATION 0.7%
Expeditors International of
Washington, Inc. 75,275 2,612,795
Tidewater, Inc. 8,089 349,849
Union Pacific Corp. 24,546 1,206,191
-------------
4,168,835
-------------
Total Common Stocks
(Cost $424,141,374) 356,651,474
-------------
<Caption>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS 1.5%
- ----------------------------------------------------------------
REPURCHASE AGREEMENT 0.5%
State Street Bank and Trust
Co.
0.05%, dated 4/30/09
due 5/1/09
Proceeds at Maturity
$2,587,388 (Collateralized
by United States
Treasury Bill with a rate
of 0.12%
and a maturity date of
7/30/09, with Principal
Amount of $2,645,000 and
Market Value of $2,644,207) $ 2,587,384 2,587,384
-------------
Total Repurchase Agreement
(Cost $2,587,384) 2,587,384
-------------
U.S. GOVERNMENT 1.0%
United States Treasury Bills
0.122%, due 7/16/09 (i) 5,000,000 4,998,710
0.136%, due 7/30/09 (i)(j) 1,100,000 1,099,628
-------------
Total U.S. Government
(Cost $6,098,077) 6,098,338
-------------
Total Short-Term Investments
(Cost $8,685,461) 8,685,722
-------------
Total Investments
(Cost $654,391,756) (l) 100.1% 587,837,751
Liabilities in Excess of
Cash and Other Assets (0.1) (396,763)
----- ------------
Net Assets 100.0% $ 587,440,988
===== ============
</Table>
<Table>
<Caption>
CONTRACTS UNREALIZED
LONG APPRECIATION (k)
FUTURES CONTRACTS 0.0%++
- --------------------------------------------------------
Standard & Poor's 500
Index
Mini June 2009 137 $261,282
--------
Total Futures Contracts
(Settlement Value
$5,959,500) $261,282
========
</Table>
18 MainStay Balanced Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
+++ On a daily basis New York Life
Investments confirms that the value of
the Fund's liquid assets (liquid
portfolio securities and cash) is
sufficient to cover its potential senior
securities (e.g., futures, swaps,
options)
++ Less than one-tenth of a percent.
(a) Illiquid security. The total market
value of this security at April 30, 2009
is $18, which represents less than one-
tenth of a percent of the Fund's net
assets.
(b) Issue in default.
(c) Restricted security.
(d) Fair valued security. The total market
value of this security at April 30, 2009
is $18, which represents less than one-
tenth of a percent of the Fund's net
assets.
(e) The debt is guaranteed under the Federal
Deposit Insurance Corporation ("FDIC")
Temporary Liquidity Guarantee Program and
is backed by the full faith and credit of
the United States. The expiration date
of the FDIC's guarantee is the earlier of
the maturity date of the debt or June 30,
2012.
(f) May be sold to institutional investors
only under Rule 144A or securities
offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
(g) Yankee Bond - dollar-denominated bond
issued in the United States by a foreign
bank or corporation.
(h) Non-income producing security.
(i) Interest rate presented is yield to
maturity.
(j) Represents a security, or a portion
thereof, which is segregated, or
partially segregated as collateral for
futures contracts.
(k) Represents the difference between the
value of the contracts at the time they
were opened and the value at April 30,
2009.
(l) At April 30, 2009, cost is $656,407,937
for federal income tax purposes and net
unrealized depreciation is as follows:
</Table>
<Table>
Gross unrealized appreciation $ 26,154,910
Gross unrealized depreciation (94,725,096)
------------
Net unrealized depreciation $(68,570,186)
============
</Table>
The following is a summary of the inputs used as of April 30, 2009 in valuing
the Fund's assets carried at fair value:
<Table>
<Caption>
INVESTMENTS IN OTHER FINANCIAL
VALUATION INPUTS SECURITIES INSTRUMENTS (A)
Level 1--Quoted Prices $356,651,474 $261,282
Level 2--Other
Significant
Observable Inputs 231,186,259 --
Level 3--Significant
Unobservable Inputs 18 --
------------ --------
Total $587,837,751 $261,282
============ ========
</Table>
(a) Other financial instruments include futures.
Following is a reconciliation of investments in which significant unobservable
inputs (Level 3) were used in determining value:
<Table>
<Caption>
INVESTMENTS IN
SECURITIES
Balance as of 10/31/08 $18
Accrued discounts/premiums --
Realized gain (loss) --
Change in unrealized
appreciation/depreciation --
Net purchases (sales) --
Net transfers in and/or out of
Level 3 --
---
Balance as of 4/30/09 $18
===
Net change in unrealized
appreciation/depreciation from
investments still held as of
4/30/09 --
===
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
19
STATEMENT OF ASSETS AND LIABILITIES AS OF APRIL 30, 2009 UNAUDITED
<Table>
ASSETS:
Investment in securities, at value
(identified cost $654,391,756) $ 587,837,751
Receivables:
Dividends and interest 2,430,687
Investment securities sold 2,327,694
Fund shares sold 157,798
Variation margin on futures
contracts 6,165
Other assets 147,291
-------------
Total assets 592,907,386
-------------
LIABILITIES:
Payables:
Investment securities purchased 3,738,893
Transfer agent (See Note 3) 621,342
Fund shares redeemed 476,620
Manager (See Note 3) 297,310
NYLIFE Distributors (See Note 3) 156,001
Professional fees 62,204
Shareholder communication 56,855
Custodian 34,515
Trustees 5,254
Accrued expenses 17,404
-------------
Total liabilities 5,466,398
-------------
Net assets $ 587,440,988
=============
COMPOSITION OF NET ASSETS:
Share of beneficial interest
outstanding
(par value of $.01 per share) 1
billion shares authorized $ 306,014
Additional paid-in capital 811,659,448
-------------
811,965,462
Accumulated undistributed net
investment income 357,547
Accumulated net realized loss on
investments and futures
transactions (158,589,298)
Net unrealized depreciation on
investments and futures contracts (66,292,723)
-------------
Net assets $ 587,440,988
=============
INVESTOR CLASS
Net assets applicable to
outstanding shares $ 50,837,200
=============
Shares of beneficial interest
outstanding 2,647,233
=============
Net asset value per share
outstanding $ 19.20
Maximum sales charge (5.50% of
offering price) 1.12
-------------
Maximum offering price per share
outstanding $ 20.32
=============
CLASS A
Net assets applicable to
outstanding shares $ 141,225,322
=============
Shares of beneficial interest
outstanding 7,356,270
=============
Net asset value per share
outstanding $ 19.20
Maximum sales charge (5.50% of
offering price) 1.12
-------------
Maximum offering price per share
outstanding $ 20.32
=============
CLASS B
Net assets applicable to
outstanding shares $ 70,856,522
=============
Shares of beneficial interest
outstanding 3,701,104
=============
Net asset value and offering price
per share outstanding $ 19.14
=============
CLASS C
Net assets applicable to
outstanding shares $ 63,479,462
=============
Shares of beneficial interest
outstanding 3,316,981
=============
Net asset value and offering price
per share outstanding $ 19.14
=============
CLASS I
Net assets applicable to
outstanding shares $ 184,608,139
=============
Shares of beneficial interest
outstanding 9,599,023
=============
Net asset value and offering price
per share outstanding $ 19.23
=============
CLASS R1
Net assets applicable to
outstanding shares $ 23,816,539
=============
Shares of beneficial interest
outstanding 1,239,736
=============
Net asset value and offering price
per share outstanding $ 19.21
=============
CLASS R2
Net assets applicable to
outstanding shares $ 52,557,649
=============
Shares of beneficial interest
outstanding 2,737,942
=============
Net asset value and offering price
per share outstanding $ 19.20
=============
CLASS R3
Net assets applicable to
outstanding shares $ 60,155
=============
Shares of beneficial interest
outstanding 3,134
=============
Net asset value and offering price
per share outstanding $ 19.20
=============
</Table>
20 MainStay Balanced Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 2009 UNAUDITED
<Table>
INVESTMENT INCOME:
INCOME:
Dividends (a) $ 4,403,461
Interest 4,146,833
Income from securities
loaned--net 110
------------
Total income 8,550,404
------------
EXPENSES:
Manager (See Note 3) 2,030,261
Transfer agent--Investor Class
(See Note 3) 127,881
Transfer agent--Class A (See Note
3) 214,859
Transfer agent--Classes B and C
(See Note 3) 375,939
Transfer agent--Classes I, R1, R2
and R3
(See Note 3) 370,623
Distribution--Class B (See Note
3) 267,488
Distribution--Class C (See Note
3) 246,344
Distribution--Class R3 (See Note
3) 59
Distribution/Service--Investor
Class (See Note 3) 58,231
Distribution/Service--Class A
(See Note 3) 180,660
Service--Class B (See Note 3) 88,877
Service--Class C (See Note 3) 81,716
Distribution/Service--Class R2
(See Note 3) 62,151
Distribution/Service--Class R3
(See Note 3) 59
Professional fees 85,448
Shareholder communication 83,535
Registration 69,529
Shareholder service--Class R1
(See Note 3) 11,472
Shareholder service--Class R2
(See Note 3) 24,909
Shareholder service--Class R3
(See Note 3) 24
Custodian 24,154
Trustees 17,190
Miscellaneous 31,706
------------
Total expenses before waiver 4,453,115
Expense waiver from Manager
(See Note 3) (353,792)
------------
Net expenses 4,099,323
------------
Net investment income 4,451,081
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on:
Security transactions $(92,555,757)
Futures transactions 4,021,338
------------
Net realized loss on investments
and futures transactions (88,534,419)
------------
Net change in unrealized
appreciation (depreciation) on:
Security transactions 78,760,767
Futures contracts (418,957)
------------
Net change in unrealized
depreciation on investments and
futures contracts 78,341,810
------------
Net realized and unrealized loss on
investments and futures contracts (10,192,609)
------------
Net decrease in net assets
resulting from operations $ (5,741,528)
============
</Table>
(a) Dividends recorded net of foreign withholding taxes in the amount of $1,314.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
21
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 2009 UNAUDITED AND THE YEAR ENDED OCTOBER 31,
2008
<Table>
<Caption>
2009 2008
DECREASE IN NET ASSETS:
Operations:
Net investment income $ 4,451,081 $ 17,976,215
Net realized loss on
investments and futures
transactions (88,534,419) (69,482,537)
Net change in unrealized
appreciation
(depreciation) on
investments and futures
contracts 78,341,810 (213,177,248)
-------------------------------
Net decrease in net assets
resulting from operations (5,741,528) (264,683,570)
-------------------------------
Dividends and distributions to shareholders:
From net investment income:
Investor Class (417,607) (603,646)
Class A (1,395,325) (5,418,133)
Class B (343,363) (1,193,014)
Class C (315,132) (1,241,955)
Class I (2,059,681) (6,524,922)
Class R1 (255,545) (1,171,162)
Class R2 (498,737) (1,521,875)
Class R3 (416) (738)
-------------------------------
(5,285,806) (17,675,445)
-------------------------------
From net realized gain on investments:
Class A -- (24,077,693)
Class B -- (8,794,284)
Class C -- (9,531,313)
Class I -- (24,773,850)
Class R1 -- (4,242,231)
Class R2 -- (6,428,934)
Class R3 -- (2,379)
-------------------------------
Total dividends and
distributions to
shareholders (5,285,806) (95,526,129)
-------------------------------
Capital share transactions:
Net proceeds from sale of
shares 43,755,245 175,720,920
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions 4,999,713 88,742,803
Cost of shares redeemed (113,717,124) (538,782,912)
-------------------------------
Decrease in net assets
derived from capital
share transactions (64,962,166) (274,319,189)
-------------------------------
Net decrease in net
assets (75,989,500) (634,528,888)
NET ASSETS:
Beginning of period 663,430,488 1,297,959,376
-------------------------------
End of period $ 587,440,988 $ 663,430,488
===============================
Accumulated undistributed
net investment income at
end of period $ 357,547 $ 1,192,272
===============================
</Table>
22 MainStay Balanced Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
This page intentionally left blank
mainstayinvestments.com 23
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
INVESTOR CLASS
---------------------------
FEBRUARY 28,
SIX MONTHS 2008**
ENDED THROUGH
APRIL 30, OCTOBER 31,
---------------------------
2009* 2008
Net asset value at beginning of
period $ 19.41 $ 25.29
------- -------
Net investment income 0.13 (a) 0.29 (a)
Net realized and unrealized gain
(loss) on investments (0.18) (5.82)
------- -------
Total from investment operations (0.05) (5.53)
------- -------
Less dividends and distributions:
From net investment income (0.16) (0.35)
From net realized gain on
investments -- --
------- -------
Total dividends and distributions (0.16) (0.35)
------- -------
Net asset value at end of period $ 19.20 $ 19.41
======= =======
Total investment return (b) (0.22%)(c) (22.12%)(c)
Ratios (to average net
assets)/Supplemental Data:
Net investment income 1.43% ++ 1.81% ++
Net expenses 1.50% ++ 1.38% ++
Expenses (before waiver) 1.61% ++ 1.38% ++
Portfolio turnover rate 84% 69%
Net assets at end of period (in
000's) $50,837 $49,971
</Table>
<Table>
<Caption>
CLASS B
------------------------------------------------------------------------
JANUARY 2,
SIX MONTHS 2004**
ENDED THROUGH
APRIL 30, YEAR ENDED OCTOBER 31, OCTOBER 31,
------------------------------------------------------------------------
2009* 2008 2007 2006 2005 2004
Net asset value at
beginning of period $ 19.35 $ 28.34 $ 27.84 $ 26.84 $ 25.37 $ 24.46
------- ------- -------- -------- -------- -------
Net investment income 0.06 (a) 0.26 (a) 0.28 (a) 0.23 0.18 0.08
Net realized and
unrealized gain (loss)
on investments (0.18) (7.25) 1.24 2.22 1.89 0.93
------- ------- -------- -------- -------- -------
Total from investment
operations (0.12) (6.99) 1.52 2.45 2.07 1.01
------- ------- -------- -------- -------- -------
Less dividends and
distributions:
From net investment
income (0.09) (0.25) (0.29) (0.20) (0.14) (0.10)
From net realized gain
on investments -- (1.75) (0.73) (1.25) (0.46) --
------- ------- -------- -------- -------- -------
Total dividends and
distributions (0.09) (2.00) (1.02) (1.45) (0.60) (0.10)
------- ------- -------- -------- -------- -------
Net asset value at end of
period $ 19.14 $ 19.35 $ 28.34 $ 27.84 $ 26.84 $ 25.37
======= ======= ======== ======== ======== =======
Total investment return
(b) (0.61%)(c) (26.47%) 5.56% 9.49% 8.19% 4.13%(c)
Ratios (to average net
assets)/Supplemental
Data:
Net investment income 0.70% ++ 1.06% 0.99% 0.94% 0.57% 0.24%++
Net expenses 2.25% ++ 2.10% 2.03% 2.07% 2.07% 2.09%++#
Expenses (before
waiver) 2.36% ++ 2.10% 2.03% 2.07% 2.07% 2.09%++#
Portfolio turnover rate 84% 69% 68% 55% 93% 42%
Net assets at end of
period (in 000's) $70,857 $81,144 $145,919 $156,284 $206,074 $62,931
</Table>
<Table>
* Unaudited.
** Commencement of operations.
++ Annualized.
# Includes transfer agent fees paid indirectly which amounted to 0.02% of
average net assets for the period ended October 31, 2004.
(a) Per share data based on average shares outstanding during the period.
(b) Total return is calculated exclusive of sales charges and assumes the
reinvestment of dividends and distributions. Class I, Class R1, Class R2 and
Class R3 shares are not subject to sales charges.
(c) Total return is not annualized.
</Table>
24 MainStay Balanced Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A
- --------------------------------------------------------------------------------------
JANUARY 2,
2004**
SIX MONTHS THROUGH
ENDED OCTOBER
APRIL 30, YEAR ENDED OCTOBER 31, 31,
- --------------------------------------------------------------------------------------
2009* 2008 2007 2006 2005 2004
$ 19.41 $ 28.42 $ 27.92 $ 26.90 $ 25.41 $ 24.45
-------- -------- -------- -------- -------- --------
0.15 (a) 0.46 (a) 0.49 (a) 0.44 0.35 0.19
(0.18) (7.26) 1.25 2.23 1.91 0.96
-------- -------- -------- -------- -------- --------
(0.03) (6.80) 1.74 2.67 2.26 1.15
-------- -------- -------- -------- -------- --------
(0.18) (0.46) (0.51) (0.40) (0.31) (0.19)
-- (1.75) (0.73) (1.25) (0.46) --
-------- -------- -------- -------- -------- --------
(0.18) (2.21) (1.24) (1.65) (0.77) (0.19)
-------- -------- -------- -------- -------- --------
$ 19.20 $ 19.41 $ 28.42 $ 27.92 $ 26.90 $ 25.41
======== ======== ======== ======== ======== ========
(0.12%)(c) (25.84%) 6.34% 10.35% 8.96% 4.70%(c)
1.68% ++ 1.87% 1.74% 1.63% 1.32% 0.99%++
1.28% ++ 1.29% 1.28% 1.32% 1.32% 1.34%++#
1.35% ++ 1.29% 1.28% 1.32% 1.32% 1.34%++#
84% 69% 68% 55% 93% 42%
$141,225 $173,834 $405,912 $420,694 $307,538 $108,204
</Table>
<Table>
<Caption>
CLASS C
--------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------
2009* 2008 2007 2006 2005 2004
$ 19.34 $ 28.33 $ 27.83 $ 26.83 $ 25.37 $ 24.08
------- ------- -------- -------- -------- -------
0.06 (a) 0.26 (a) 0.28 (a) 0.24 0.17 0.13
(0.17) (7.25) 1.24 2.21 1.89 1.62
------- ------- -------- -------- -------- -------
(0.11) (6.99) 1.52 2.45 2.06 1.75
------- ------- -------- -------- -------- -------
(0.09) (0.25) (0.29) (0.20) (0.14) (0.14)
-- (1.75) (0.73) (1.25) (0.46) (0.32)
------- ------- -------- -------- -------- -------
(0.09) (2.00) (1.02) (1.45) (0.60) (0.46)
------- ------- -------- -------- -------- -------
$ 19.14 $ 19.34 $ 28.33 $ 27.83 $ 26.83 $ 25.37
======= ======= ======== ======== ======== =======
(0.55%)(c) (26.48%) 5.56% 9.49% 8.15% 7.30%
0.71% ++ 1.06% 0.99% 0.89% 0.57% 0.24%
2.25% ++ 2.10% 2.03% 2.07% 2.07% 2.09%#
2.36% ++ 2.10% 2.03% 2.07% 2.07% 2.09%#
84% 69% 68% 55% 93% 42%
$63,479 $79,423 $161,163 $169,609 $141,279 $29,301
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
25
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
Class I
--------------------------------------------------------------------------------
Six months
ended
April 30, Year ended October 31,
--------------------------------------------------------------------------------
2009* 2008 2007 2006 2005 2004
Net asset value at
beginning of period $ 19.44 $ 28.47 $ 27.96 $ 26.94 $ 25.43 $ 24.07
-------- -------- -------- -------- -------- --------
Net investment income 0.18 (a) 0.55 (a) 0.60 (a) 0.53 0.45 0.34
Net realized and
unrealized gain (loss)
on investments (0.18) (7.28) 1.25 2.27 1.94 1.68
-------- -------- -------- -------- -------- --------
Total from investment
operations -- (6.73) 1.85 2.80 2.39 2.02
-------- -------- -------- -------- -------- --------
Less dividends and
distributions:
From net investment
income (0.21) (0.55) (0.61) (0.53) (0.42) (0.34)
From net realized gain
on investments -- (1.75) (0.73) (1.25) (0.46) (0.32)
-------- -------- -------- -------- -------- --------
Total dividends and
distributions (0.21) (2.30) (1.34) (1.78) (0.88) (0.66)
-------- -------- -------- -------- -------- --------
Net asset value at end of
period $ 19.23 $ 19.44 $ 28.47 $ 27.96 $ 26.94 $ 25.43
======== ======== ======== ======== ======== ========
Total investment return
(b) 0.07%(c) (25.62%) 6.77% 10.84% 9.46% 8.45%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income 2.00%++ 2.22% 2.10% 2.11% 1.77% 1.42%
Net expenses 0.94%++ 0.94% 0.91% 0.85% 0.86% 0.91%#
Expenses (before waiver) 1.10%++ 1.01% 0.95% 0.85% 0.86% 0.91%#
Portfolio turnover rate 84% 69% 68% 55% 93% 42%
Net assets at end of
period (in 000's) $184,608 $199,126 $410,355 $376,763 $269,652 $180,262
</Table>
<Table>
<Caption>
Class R2
--------------------------------------------------------------------------------
January 2,
2004**
Six months through
ended October
April 30, Year ended October 31, 31,
--------------------------------------------------------------------------------
2009* 2008 2007 2006 2005 2004
Net asset value at
beginning of period $ 19.41 $ 28.42 $ 27.91 $ 26.90 $ 25.41 $ 24.45
------- ------- -------- -------- ------- -------
Net investment income 0.15 (a) 0.46 (a) 0.50 (a) 0.46 0.39 0.18
Net realized and
unrealized gain (loss)
on investments (0.18) (7.26) 1.25 2.23 1.90 0.97
------- ------- -------- -------- ------- -------
Total from investment
operations (0.03) (6.80) 1.75 2.69 2.29 1.15
------- ------- -------- -------- ------- -------
Less dividends and
distributions:
From net investment
income (0.18) (0.46) (0.51) (0.43) (0.34) (0.19)
From net realized gain
on investments -- (1.75) (0.73) (1.25) (0.46) --
------- ------- -------- -------- ------- -------
Total dividends and
distributions (0.18) (2.21) (1.24) (1.68) (0.80) (0.19)
------- ------- -------- -------- ------- -------
Net asset value at end of
period $ 19.20 $ 19.41 $ 28.42 $ 27.91 $ 26.90 $ 25.41
======= ======= ======== ======== ======= =======
Total investment return
(b) (0.11%)(c) (25.86%) 6.40% 10.44% 9.05% 4.71%(c)
Ratios (to average net
assets)/Supplemental
Data:
Net investment income 1.66% ++ 1.87% 1.76% 1.75% 1.43% 1.07%++
Net expenses 1.29% ++ 1.29% 1.26% 1.20% 1.21% 1.26%++#
Expenses (before waiver) 1.45% ++ 1.36% 1.30% 1.20% 1.21% 1.26%++#
Portfolio turnover rate 84% 69% 68% 55% 93% 42%
Net assets at end of
period (in 000's) $52,558 $54,849 $105,100 $109,637 $70,872 $19,324
</Table>
<Table>
* Unaudited.
** Commencement of operations.
++ Annualized.
# Includes transfer agent fees paid indirectly which amounted to 0.02% of
average net assets for the period ended October 31, 2004.
(a) Per share data based on average shares outstanding during the period.
(b) Total return is calculated exclusive of sales charges and assumes the
reinvestment of dividends and distributions. Class I, Class R1, Class R2 and
Class R3 shares are not subject to sales charges.
(c) Total return is not annualized.
</Table>
26 MainStay Balanced Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS R1
---------------------------------------------------------------------------
JANUARY 2,
2004**
SIX MONTHS THROUGH
ENDED OCTOBER
APRIL 30, YEAR ENDED OCTOBER 31, 31,
- ---------------------------------------------------------------------------------
2009* 2008 2007 2006 2005 2004
$ 19.42 $ 28.44 $ 27.94 $ 26.93 $ 25.43 $ 24.45
------- ------- ------- -------- ------- -------
0.17 (a) 0.53 (a) 0.57 (a) 0.53 0.43 0.23
(0.18) (7.28) 1.25 2.23 1.93 0.98
------- ------- ------- -------- ------- -------
(0.01) (6.75) 1.82 2.76 2.36 1.21
------- ------- ------- -------- ------- -------
(0.20) (0.52) (0.59) (0.50) (0.40) (0.23)
-- (1.75) (0.73) (1.25) (0.46) --
------- ------- ------- -------- ------- -------
(0.20) (2.27) (1.32) (1.75) (0.86) (0.23)
------- ------- ------- -------- ------- -------
$ 19.21 $ 19.42 $ 28.44 $ 27.94 $ 26.93 $ 25.43
======= ======= ======= ======== ======= =======
0.02%(c) (25.69%) 6.64% 10.70% 9.33% 4.96%(c)
1.90%++ 2.13% 2.02% 1.99% 1.68% 1.32%++
1.04%++ 1.04% 1.01% 0.95% 0.96% 1.01%++#
1.20%++ 1.11% 1.05% 0.95% 0.96% 1.01%++#
84% 69% 68% 55% 93% 42%
$23,817 $25,038 $69,474 $108,739 $77,397 $30,394
</Table>
<Table>
<Caption>
Class R3
-------------------------------------------------------------------------------------
April 28,
2006**
Six months through
ended October
April 30, Year ended October 31, 31,
-------------------------------------------------------------------------------------
2009* 2008 2007 2006
$19.41 $ 28.41 $27.91 $27.25
------ ------- ------ ------
0.12 (a) 0.40 (a) 0.41 (a) 0.20
(0.17) (7.26) 1.26 0.66
------ ------- ------ ------
(0.05) (6.86) 1.67 0.86
------ ------- ------ ------
(0.16) (0.39) (0.44) (0.20)
-- (1.75) (0.73) --
------ ------- ------ ------
(0.16) (2.14) (1.17) (0.20)
------ ------- ------ ------
$19.20 $ 19.41 $28.41 $27.91
====== ======= ====== ======
(0.24%)(c) (26.02%) 6.10% 3.18%(c)
1.37% ++ 1.62% 1.46% 1.36%++
1.54% ++ 1.54% 1.52% 1.48%++
1.71% ++ 1.61% 1.56% 1.48%++
84% 69% 68% 55%
$ 60 $ 45 $ 37 $ 10
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
27
NOTES TO FINANCIAL STATEMENTS UNAUDITED
NOTE 1--ORGANIZATION AND BUSINESS:
Eclipse Funds (the "Trust") was organized on July 30, 1986, as a Massachusetts
business trust. The Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company,
and is comprised of three funds (collectively referred to as the "Funds"). These
financial statements and notes relate only to the MainStay Balanced Fund (the
"Fund"), a diversified fund.
The Fund currently offers eight classes of shares. Class I shares commenced
operations on May 1, 1989. Class C shares commenced operations on December 30,
2002. Class A shares, Class B shares, Class R1 shares and Class R2 shares
commenced operations on January 2, 2004. Class R3 shares commenced operations on
April 28, 2006. Investor Class shares commenced operations on February 28, 2008.
Investor Class and Class A shares are offered at net asset value ("NAV") per
share plus an initial sales charge. No sales charge applies on investments of $1
million or more (and certain other qualified purchases) in Investor Class and
Class A shares, but a contingent deferred sales charge is imposed on certain
redemptions of such shares within one year of the date of purchase. Class B
shares and Class C shares are offered without an initial sales charge, although
a declining contingent deferred sales charge may be imposed on redemptions made
within six years of purchase of Class B shares and a 1.00% contingent deferred
sales charge may be imposed on redemptions made within one year of purchase of
Class C shares. Class I, Class R1, Class R2 and Class R3 shares are not subject
to a sales charge. Depending upon eligibility, Class B shares convert to either
Investor Class or Class A shares eight years after the date they were purchased.
Additionally, depending upon eligibility, Investor Class shares may convert to
Class A shares and Class A shares may convert to Investor Class shares. The
eight classes of shares have the same voting (except for issues that relate
solely to one class), dividend, liquidation and other rights, and bear the same
conditions except that Class B and Class C shares are subject to higher
distribution fee rates than Investor Class, Class A, Class R2 and Class R3
shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act.
Class I and Class R1 shares are not subject to a distribution or service fee.
Class R1, Class R2 and Class R3 shares are authorized to pay a shareholder
service fee to the Manager, as defined in Note 3(A), its affiliates, or third-
party service providers, as compensation for services rendered to shareholders
of Class R1, Class R2 or Class R3 shares.
The Fund's investment objective is to seek high total return.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The Fund prepares its financial statements in accordance with accounting
principles generally accepted in the United States of America and follows the
significant accounting policies described below.
(A) SECURITIES VALUATION. Debt securities are valued at prices supplied by a
pricing agent or broker selected by the Fund's Manager (as defined in Note 3(A))
in consultation with the Fund's Subadvisor, if any, whose prices reflect
broker/dealer supplied valuations and electronic data processing techniques, if
such prices are deemed by the Fund's Manager, in consultation with the Fund's
Subadvisor, if any, to be representative of market values, at the regular close
of trading of the New York Stock Exchange (generally 4:00 p.m. Eastern time) on
each day the Fund is open for business ("valuation date").
Equity securities are valued at the latest quoted sales prices as of the close
of trading on the New York Stock Exchange on each valuation date. Securities
that are not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Prices normally are taken from the principal market
in which each security trades. Futures contracts are valued at the last posted
settlement price on the market where such futures are primarily traded.
Investments in other mutual funds are valued at their NAVs as of the close of
the New York Stock Exchange on the date of valuation.
Temporary cash investments acquired over 60 days prior to maturity are valued
using the latest bid prices or using valuations based on a matrix system (which
considers such factors as security prices, yields, maturities, and ratings),
both as furnished by independent pricing services. Other temporary cash
investments which mature in 60 days or less are valued at amortized cost. The
amortized cost method involves valuing a security at its cost on the date of
purchase and thereafter assuming a constant amortization to maturity of the
difference between the principal amount due at maturity and cost.
Securities for which market quotations are not readily available are valued by
methods deemed in good faith by the Fund's Board of Trustees to represent fair
value. Equity and non-equity securities which may be valued in this manner
include, but are not limited to: (i) a security the trading for which has been
halted or suspended; (ii) a debt security that has recently gone into default
and for which there is not a current market quotation; (iii) a security of an
issuer that has entered into a restructuring; (iv) a security that has been de-
listed from a national exchange; (v) a security the market price of which is not
available from an independent pricing source or, if so provided, does not, in
the opinion of the Fund's Manager or Subadvisor, as defined in Note 3(A),
reflect the security's market value; and (vi) a security where the trading on
that security's principal market is temporarily closed at a time when, under
normal conditions, it would be open. At April 30, 2009, the Fund held securities
with a value of $18 that were valued in such a manner.
The Fund adopted Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"),
effective for the fiscal year beginning November 1, 2008. In
28 MainStay Balanced Fund
accordance with SFAS 157, fair value is defined as the price that the Fund would
receive upon selling an investment in an orderly transaction to an independent
buyer in the principal or most advantageous market of the investment. SFAS 157
established a three-tier hierarchy which maximizes the use of observable market
data and minimizes the use of unobservable inputs to establish classification of
fair value measurements for disclosure purposes. Inputs refer broadly to the
assumptions that market participants would use in pricing the asset or
liability, including assumptions about risk, such as, the risk inherent in a
particular valuation technique used to measure fair value, including such a
pricing model and/or the risk inherent in the inputs to the valuation technique.
Inputs may be observable or unobservable. Observable inputs are inputs that
reflect the assumptions market participants would use in pricing the asset or
liability developed based on market data obtained from sources independent of
the reporting entity. Unobservable inputs are inputs that reflect the reporting
entity's own assumptions about the assumptions market participants would use in
pricing the asset or liability developed based on the information available in
the circumstances. The inputs or methodology used for valuing securities may not
be an indication of the risks associated with investing in those securities. The
three-tier hierarchy of inputs is summarized in the three broad Levels listed
below.
- - Level 1--quoted prices in active markets for identical investments
- - Level 2--other significant observable inputs (including quoted prices for
similar investments in active markets, interest rates and yield curves,
prepayment speeds, credit risks, etc.)
- - Level 3--significant unobservable inputs (including the Fund's own assumptions
about the assumptions that market participants would use in determining the
fair value of investments)
The aggregate value by input level, as of April 30, 2009, for the Fund's
investments is included at the end of the Fund's Portfolio of Investments.
The valuation techniques used by the Fund to measure fair value during the six-
month period ended April 30, 2009, maximized the use of observable inputs and
minimized the use of unobservable inputs. The Fund utilized the following fair
value techniques: multi-dimensional relational pricing models, option adjusted
spread pricing and estimating the price that would have prevailed in a liquid
market for an international equity security given information available at the
time of evaluation, when there are significant events after the close of local
foreign markets.
In April 2009, FASB issued FASB Staff Position No. 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" ("FSP
157-4"). FSP 157-4 provides additional guidance for estimating fair value in
accordance with FASB SFAS 157, when the volume and level of activity for the
asset or liability have significantly decreased as well as guidance on
identifying circumstances that indicate a transaction is not orderly. FSP 157-4
is effective for fiscal years and interim periods ending after June 15, 2009.
Management is currently evaluating the impact the adoption of FSP 157-4 will
have on the Fund's financial statement disclosures.
(B) FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute all of the taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no federal income tax provision is required.
In July 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes," ("FIN 48")
an interpretation of FASB Statement No. 109 (the "Interpretation"). The
Interpretation established for all entities, including pass-through entities
such as the Fund, a minimum threshold for financial statement recognition of the
benefit of positions taken in filing tax returns (including whether an entity is
taxable in a particular jurisdiction), and requires certain expanded tax
disclosures. The Fund has not recorded any tax liabilities pursuant to FIN 48.
Each of the Fund's tax returns for the prior three years remains subject to
examination by the Internal Revenue Service and state tax authorities. The
Manager, as defined in Note 3(A), determined that the adoption of the
Interpretation did not have an impact on the Fund's financial statements upon
adoption. The Manager continually reviews the Fund's tax positions and such
conclusions under the Interpretation based on factors, including, but not
limited to, ongoing analyses of tax laws and regulations and interpretations
thereof.
(C) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions
are recorded on the ex-dividend date. The Fund intends to declare and pay
dividends of net investment income quarterly and distributions of net realized
capital and currency gains, if any, annually. All dividends and distributions
are reinvested in shares of the Fund, at NAV, unless the shareholder elects
otherwise. Dividends and distributions to shareholders are determined in
accordance with federal income tax regulations and may differ from generally
accepted accounting principles in the United States of America.
(D) SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method and include gains
and losses from repayments of principal on mortgage-backed securities. Dividend
income is recognized on the ex-dividend date and interest income is accrued as
earned using the effective interest rate method. Discounts
mainstayinvestments.com 29
NOTES TO FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
and premiums on securities purchased, other than short-term securities, for the
Fund are accreted and amortized, respectively, on the effective interest rate
method over the life of the respective securities or, in the case of a callable
security, over the period to the first date of call. Discounts and premiums on
short-term securities are accreted and amortized, respectively, on the straight-
line method.
Investment income and realized and unrealized gains and losses on investments of
the Fund are allocated to separate classes of shares pro rata based upon their
relative net assets on the date the income is earned or realized and unrealized
gains and losses are incurred.
(E) EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred, except where direct allocations of expenses can be made. Expenses
(other than transfer agent expenses and fees incurred under the shareholder
services plans and the distribution plans further discussed in Note 3(B)) are
allocated to separate classes of shares pro rata based upon their relative net
asset value on the date the expenses are incurred. The expenses borne by the
Fund, including those of related parties to the Fund, are shown in the Statement
of Operations.
(F) USE OF ESTIMATES. In preparing financial statements in conformity with
accounting principles generally accepted in the United States of America,
management makes estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
(G) REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements to
earn income. The Fund may enter into repurchase agreements only with financial
institutions that are deemed by the Manager or Subadvisor, if any, to be
creditworthy, pursuant to guidelines established by the Fund's Board of
Trustees. Repurchase agreements are considered under the Investment Company Act
to be collateralized loans by a Fund to the seller secured by the securities
transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund's custodian takes
possession of the collateral pledged for investments in such repurchase
agreements. The underlying collateral is valued daily on a mark-to-market basis
to determine that the value, including accrued interest, exceeds the repurchase
price. In the event of the seller's default of the obligation to repurchase, the
Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
(H) FUTURES CONTRACTS. A futures contract is an agreement to purchase or sell a
specified quantity of an underlying instrument at a specified future date and
price, or to make or receive a cash payment based on the value of a securities
index. During the period the futures contract is open, changes in the value of
the contract are recognized as unrealized gains or losses by "marking-to-market"
such contract on a daily basis to reflect the market value of the contract at
the end of each day's trading. The Fund agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments are known as "variation margin." When the
futures contract is closed, the Fund records a realized gain or loss equal to
the difference between the proceeds from (or cost of) the closing transaction
and the Fund's basis in the contract. The Fund invests in stock index futures
contracts to gain full exposure to changes in stock market prices to fulfill its
investment objectives. The Fund's investment in futures contracts and other
derivatives may increase the volatility of the Fund's net asset value and may
result in a loss to the Fund.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the Statement of Assets and
Liabilities. The contract or notional amounts and variation margin reflect the
extent of the Fund's involvement in open futures positions. Risks arise from the
possible imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets, and the possible inability of
counterparties to meet the terms of their contracts. However, the Fund's
activities in futures contracts are conducted through regulated exchanges which
minimize counterparty credit risks.
(I) SECURITIES LENDING. In order to realize additional income, the Fund may
engage in securities lending, subject to the limitations set forth in the
Investment Company Act of 1940. In the event the Fund does engage in securities
lending, the Fund will lend through its custodian, State Street Bank and Trust
Company ("State Street"). State Street manages the Fund's cash collateral in
accordance with the Lending Agreement between the Fund and State Street, and
indemnifies the Fund's portfolio against counterparty risk. The loans are
collateralized by cash or securities at least equal at all times to the market
value of the securities loaned. Collateral will consist of U.S. Government
securities, cash equivalents or irrevocable letters of credit. The Fund may bear
the risk of delay in recovery of, or loss of rights in, the securities loaned
should the borrower of the securities experience financial difficulty. The Fund
may also record realized gain or loss on securities deemed sold due to
borrower's inability to return securities on loan. The Fund receives
compensation for lending its securities in the form of fees or it retains a
portion of interest on the investment of any cash received as collateral. The
Fund also continues to receive interest and dividends on the securities loaned
and any gain or loss in the market price of the securities loaned that may occur
during the term of the loan will be for the account of the Fund.
In light of current market conditions, the Fund's Board of Trustees and New York
Life Investments, as defined in
30 MainStay Balanced Fund
Note 3(A), have determined that it is in the best interest of the Fund to
temporarily stop lending portfolio securities, and to recall all outstanding
loans. As a result, on September 18, 2008, the Fund temporarily suspended its
participation in the securities lending program and initiated a recall of all
securities out on loan. All loaned securities have since been recalled. The Fund
and New York Life Investments reserve the right to reinstitute lending when
deemed appropriate.
(J) RESTRICTED SECURITIES. A restricted security is a security which has been
purchased through a private offering and cannot be resold to the general public
without prior registration under the Securities Act of 1933. The Fund may not
have the right to demand that such securities be registered. Disposal of these
securities may involve time-consuming negotiations and expenses and it may be
difficult to obtain a prompt sale at an acceptable price. (See Note 5.)
(K) CONCENTRATION OF RISK. The ability of issuers of debt securities held by
the Fund to meet their obligations may be affected by economic or political
developments in a specific country, industry or region.
(L) INDEMNIFICATIONS. Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities that may arise out of
performance of their duties to the Trust. Additionally, in the normal course of
business, the Fund enters into contracts with third-party service providers that
contain a variety of representations and warranties and which provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the Fund
that have not yet occurred. Based on experience, management is of the view that
the risk of loss in connection with these potential indemnification obligations
is remote. However, there can be no assurance that material liabilities related
to such obligations will not arise in the future, which could adversely impact
the Fund.
NOTE 3--FEES AND RELATED PARTY TRANSACTIONS:
(A) MANAGER AND SUBADVISOR. New York Life Investment Management LLC ("New York
Life Investments" or "Manager"), a registered investment adviser and an
indirect, wholly-owned subsidiary of New York Life Insurance Company ("New York
Life"), serves as the Fund's Manager, pursuant to an Amended and Restated
Management Agreement ("Management Agreement"). The Manager provides offices,
conducts clerical, recordkeeping and bookkeeping services, and keeps most of the
financial and accounting records required to be maintained by the Fund. The
Manager also pays the salaries and expenses of all personnel affiliated with the
Fund and all the operational expenses that are not the responsibility of the
Fund. The fixed-income portion of the Fund is advised by New York Life
Investments directly, without a Subadvisor. As of January 1, 2009, Madison
Square Investors LLC ("Madison Square Investors" or "Subadvisor"), a registered
investment adviser and an indirect, wholly-owned subsidiary of New York Life,
serves as Subadvisor to the equity portion of the Fund and is responsible for
the day-to-day portfolio management of the equity portion of the Fund. Pursuant
to the terms of an Amended and Restated Subadvisory Agreement ("Subadvisory
Agreement") between New York Life Investments and the Subadvisor, New York Life
Investments pays for the services of the Subadvisor.
The Fund pays the Manager a monthly fee for services performed and facilities
furnished at an annual rate of the Fund's average daily net assets as follows:
0.70% on assets up to $1 billion, 0.65% on assets from $1 billion to $2 billion
and 0.60% on assets in excess of $2 billion. Prior to May 1, 2008, the Fund was
contractually obligated to pay the Manager a monthly fee for services performed
and facilities furnished at an annual rate of the Fund's average daily net
assets as follows: 0.75% on assets up to $1 billion and 0.70% on assets in
excess of $1 billion.
Effective September 29, 2008, New York Life Investments has entered into a
written expense limitation agreement under which it has agreed to waive a
portion of the Fund's management fee or reimburse the expenses of the
appropriate class of the Fund so that the total ordinary operating expenses of a
class (total ordinary operating expenses excludes taxes, interest, litigation,
extraordinary expenses, brokerage, other transaction expenses relating to the
purchase or sale of portfolio investments, and the fees and expenses of any
other funds in which the Fund invests) do not exceed the following percentages
of average daily net assets: Investor Class, 1.50%; Class A, 1.28%; Class B,
2.25%; Class C, 2.25%; Class I, 0.94%; Class R1, 1.04%; Class R2, 1.29%; and
Class R3, 1.54%. These expense limitations may be modified or terminated only
with the approval of the Board of Trustees. New York Life Investments may recoup
the amount of certain management fee waivers or expense reimbursements from the
Fund pursuant to the agreement if such action does not cause the Fund to exceed
the existing expense limitations and the recoupment is made within three years
after the year in which New York Life Investments incurred the expense.
Between April 1, 2008 (February 28, 2008, for the Investor Class) New York Life
Investments had a written expense limitation agreement under which it had agreed
to waive a portion of the Fund's management fee or reimburse the expenses of the
appropriate class of the Fund so that the class' total ordinary operating
expenses did not exceed the following percentages of average daily net assets
for each class: Investor Class, 1.50%; Class A, 1.28%; Class B, 2.25%; Class C,
2.25%; Class I, 0.94%; Class R1, 1.04%; Class R2, 1.29%; and Class R3, 1.54%.
For the six-month period ended April 30, 2009, New York Life Investments earned
fees from the Fund in the amount of $2,030,261 and waived its fees in the amount
of $353,792.
mainstayinvestments.com 31
NOTES TO FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
As of April 30, 2009, the amounts of waived fees that are subject to possible
recoupment by the Manager, and the related expiration dates are as follows:
<Table>
<Caption>
OCTOBER 31,
2010 2011 2012 TOTAL
$274,906 $324,453 $353,792 $953,151
- -------------------------------------------------------------------------
</Table>
State Street Bank and Trust Company, 1 Lincoln Street, Boston, Massachusetts
02111, provides sub-administration and sub-accounting services to the Fund
pursuant to an agreement with New York Life Investments. These services include
calculating daily NAVs of the Fund, maintaining general ledger and sub-ledger
accounts for the calculation of the Fund's respective NAVs, and assisting New
York Life Investments in conducting various aspects of the Fund's administrative
operations. For providing these services to the Fund, State Street is
compensated by New York Life Investments.
(B) DISTRIBUTION, SERVICE AND SHAREHOLDER SERVICE FEES. The Trust, on behalf of
the Fund, has a Distribution Agreement with NYLIFE Distributors LLC (the
"Distributor"), an indirect, wholly-owned subsidiary of New York Life. The Fund,
with respect to Investor Class, Class A, Class B, Class C, Class R2 and Class R3
shares, has adopted distribution plans (the "Plans") in accordance with the
provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class, Class A and Class R2 Plans, the Distributor
receives a monthly distribution fee from the Fund at an annual rate of 0.25% of
the average daily net assets of the Fund's Investor Class, Class A and Class R2
shares, which is an expense of the Investor Class, Class A and Class R2 shares
of the Fund, for distribution or service activities as designated by the
Distributor. Pursuant to the Class B and Class C Plans, the Fund pays the
Distributor a monthly distribution fee, which is an expense of the Class B and
Class C shares of the Fund, at an annual rate of 0.75% of the average daily net
assets of the Fund's Class B and Class C shares. The Plans provide that the
Class B and Class C shares of the Fund also incur a shareholder service fee at
an annual rate of 0.25% of an average daily net asset value of the Class B and
Class C shares of the Fund. Pursuant to the Class R3 Plan, the Distributor
receives a monthly distribution and shareholder service fee from the Fund at an
annual rate of 0.50% of the average daily net assets of the Fund's Class R3
shares, which is an expense of the Class R3 shares of the Fund for distribution
and service activities as designated by the Distributor. Class I and Class R1
shares are not subject to a distribution or service fee.
The Plans provide that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
In accordance with the Shareholder Services Plans for the Class R1, Class R2 and
Class R3 shares, the Manager has agreed to provide, through its affiliates or
independent third parties, various shareholder and administrative support
services to shareholders of the Class R1, Class R2 and Class R3 shares. For its
services, the Manager is entitled to a Shareholder Service Fee accrued daily and
paid monthly at an annual rate of 0.10% of the average daily net assets
attributable to the Class R1, Class R2 and Class R3 shares.
(C) SALES CHARGES. The Fund was advised by the Distributor that the amount of
sales charges retained on sales of Investor Class and Class A shares were
$13,660 and $4,410, respectively, for the six-month period ended April 30, 2009.
The Fund was also advised that the Distributor retained contingent deferred
sales charges on redemptions of Class A, Class B and Class C shares of $592,
$96,199 and $1,808, respectively, for the six-month period ended April 30, 2009.
(D) TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. NYLIM
Service Company LLC ("MainStay Investments"), an affiliate of New York Life
Investments, is the Fund's transfer, dividend disbursing and shareholder
servicing agent. MainStay Investments has entered into an agreement with Boston
Financial Data Services pursuant to which it performs certain services for which
MainStay Investments is responsible. Transfer agent expenses incurred by the
Fund for the six-month period ended April 30, 2009, amounted to $1,089,302.
(E) SMALL ACCOUNT FEES. Shareholders with small accounts adversely impact the
cost of providing transfer agency services. In an effort to reduce total
transfer agency expenses, the Fund has implemented a small account fee on
certain types of accounts. Shareholders with an account balance of less than
$1,000 are charged an annual per account fee of $20 (assessed semi-annually).
These fees are included in transfer agent fees shown on the Statement of
Operations.
(F) CAPITAL. At April 30, 2009, New York Life and its affiliates held
beneficially shares of the Fund with the following values and percentages of net
assets as follows:
<Table>
Class A $1,189 0.0%++
- -------------------------------------------------
Class B 950 0.0++
- -------------------------------------------------
Class C 1,277 0.0++
- -------------------------------------------------
Class R1 1,001 0.0++
- -------------------------------------------------
Class R2 989 0.0++
- -------------------------------------------------
Class R3 8,079 13.4
- -------------------------------------------------
</Table>
++ Less than one-tenth of a percent.
(G) OTHER. Pursuant to the Management Agreement, the cost of legal services
provided to the Fund by the Office of the General Counsel of New York Life
Investments is payable directly by the Fund. For the six-month period ended
April 30, 2009, these fees, which are included in professional fees shown on the
Statement of Operations, were $29,675.
32 MainStay Balanced Fund
NOTE 4--FEDERAL INCOME TAX:
At October 31, 2008, for federal income tax purposes, capital loss carryforwards
of $67,358,168 were available as shown in the table below, to the extent
provided by the regulations to offset future realized gains of the fund through
the years indicated. To the extent that these loss carryforwards are used to
offset future capital gains, it is probable that the capital gains so offset
will not be distributed to shareholders.
<Table>
<Caption>
CAPITAL LOSS CAPITAL LOSS
AVAILABLE THROUGH AMOUNTS (000'S)
2016 $67,358
- ------------------------------------
</Table>
The tax character of distributions paid during the year ended October 31, 2008,
shown in the Statement of Changes in Net Assets, was as follows:
<Table>
<Caption>
2008
Distributions paid from:
Ordinary Income $31,529,550
Long-Term Capital Gains 63,996,579
- ------------------------------------------------
Total $95,526,129
- ------------------------------------------------
</Table>
NOTE 5--RESTRICTED SECURITY:
As of April 30, 2009, the Fund held the following restricted security:
<Table>
<Caption>
DATE(S) OF PRINCIPAL 4/30/09 PERCENTAGE OF
SECURITY ACQUISITION AMOUNT COST VALUE NET ASSETS
At Home Corp.
Convertible Bond
4.75%, due 12/31/49 7/25/01 $117,810 $13,325 $18 0.0%++
---------------------------------------------------------------------------------------------------
</Table>
++ Less than one-tenth of a percent.
NOTE 6--CUSTODIAN:
State Street is the custodian of cash and securities of the Fund. Custodial fees
are charged to the Fund based on the market value of securities in the Fund and
the number of certain cash transactions incurred by the Fund.
NOTE 7--LINE OF CREDIT:
The Fund, and certain affiliated funds, maintain a line of credit of
$160,000,000 with a syndicate of banks in order to secure a source of funds for
temporary purposes to meet unanticipated or excessive shareholder redemption
requests. Effective September 3, 2008, these Funds pay a commitment fee at an
annual rate of 0.08% of the average commitment amount, regardless of usage, to
The Bank of New York Mellon, which serves as agent to the syndicate. Such
commitment fees are allocated among the Funds based upon net assets and other
factors. Interest on any revolving credit loan is charged based upon the Federal
Funds Advances rate. There were no borrowings made or outstanding with respect
to the Fund on the line of credit during the six-month period ended April 30,
2009.
NOTE 8--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six-month period ended April 30, 2009, purchases and sales of U.S.
Government securities were $185,487 and $119,087, respectively. Purchases and
sales of securities, other than U.S. Government securities and short-term
securities, were $306,700 and $410,650, respectively.
NOTE 9--CAPITAL SHARE TRANSACTIONS:
<Table>
<Caption>
INVESTOR CLASS SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 128,419 $ 2,341,770
Shares issued to
shareholders in
reinvestment of dividends 22,629 414,506
Shares redeemed (283,757) (5,138,619)
--------------------------
Net decrease in shares
outstanding before
conversion (132,709) (2,382,343)
Shares converted into
Investor Class (See Note
1) 207,240 3,675,599
Shares converted from
Investor Class (See Note
1) (1,208) (22,488)
--------------------------
Net increase 73,323 $ 1,270,768
==========================
Period ended October 31,
2008 (a):
Shares sold 561,659 $ 14,100,622
Shares issued to
shareholders in
reinvestment of dividends
and distributions 25,309 599,017
Shares redeemed (423,337) (10,030,595)
--------------------------
Net increase in shares
outstanding before
conversion 163,631 4,669,044
Shares converted into
Investor Class (See Note
1) 2,608,564 63,301,198
Shares converted from
Investor Class (See Note
1) (198,285) (4,567,256)
--------------------------
Net increase 2,573,910 $ 63,402,986
==========================
(a) Investor Class shares were first offered on February
28, 2008.
</Table>
mainstayinvestments.com 33
NOTES TO FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
<Table>
<Caption>
INVESTOR CLASS SHARES AMOUNT
<Caption>
CLASS A SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 271,094 $ 4,964,787
Shares issued to
shareholders in
reinvestment of dividends 67,976 1,244,809
Shares redeemed (1,855,819) (33,866,474)
--------------------------
Net decrease in shares
outstanding before
conversion (1,516,749) (27,656,878)
Shares converted into Class
A
(See Note 1) 48,591 881,557
Shares converted from Class
A (See Note 1) (133,732) (2,424,558)
--------------------------
Net decrease (1,601,890) $ (29,199,879)
==========================
Year ended October 31, 2008:
Shares sold 1,090,955 $ 27,182,393
Shares issued to
shareholders in
reinvestment of dividends
and distributions 1,017,956 26,715,124
Shares redeemed (5,344,353) (132,030,445)
--------------------------
Net decrease in shares
outstanding before
conversion (3,235,442) (78,132,928)
Shares converted into Class
A
(See Note 1) 423,364 10,227,745
Shares converted from Class
A (See Note 1) (2,511,567) (60,910,587)
--------------------------
Net decrease (5,323,645) $(128,815,770)
==========================
<Caption>
CLASS B SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 156,908 $ 2,861,024
Shares issued to
shareholders in
reinvestment of dividends 16,716 305,407
Shares redeemed (544,544) (9,819,982)
--------------------------
Net decrease in shares
outstanding before
conversion (370,920) (6,653,551)
Shares converted from Class
B
(See Note 1) (121,379) (2,110,110)
--------------------------
Net decrease (492,299) $ (8,763,661)
==========================
Year ended October 31, 2008:
Shares sold 377,899 $ 9,335,509
Shares issued to
shareholders in
reinvestment of dividends
and distributions 338,374 8,885,377
Shares redeemed (1,347,198) (33,052,656)
--------------------------
Net decrease in shares
outstanding before
conversion (630,925) (14,831,770)
Shares converted from Class
B
(See Note 1) (324,289) (8,051,100)
--------------------------
Net decrease (955,214) $ (22,882,870)
==========================
<Caption>
CLASS C SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 148,528 $ 2,711,531
Shares issued to
shareholders in
reinvestment of dividends 12,852 234,767
Shares redeemed (950,394) (17,109,206)
--------------------------
Net decrease (789,014) $ (14,162,908)
==========================
Year ended October 31, 2008:
Shares sold 467,635 $ 11,651,098
Shares issued to
shareholders in
reinvestment of dividends
and distributions 307,778 8,086,388
Shares redeemed (2,357,820) (58,125,152)
--------------------------
Net decrease (1,582,407) $ (38,387,666)
==========================
<Caption>
CLASS I SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 964,250 $ 17,595,246
Shares issued to
shareholders in
reinvestment of dividends 111,619 2,046,420
Shares redeemed (1,719,096) (31,067,912)
--------------------------
Net decrease (643,227) $ (11,426,246)
==========================
Year ended October 31, 2008:
Shares sold 3,090,704 $ 77,224,830
Shares issued to
shareholders in
reinvestment of dividends
and distributions 1,184,298 31,075,554
Shares redeemed (8,447,165) (211,368,875)
--------------------------
Net decrease (4,172,163) $(103,068,491)
==========================
<Caption>
CLASS R1 SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 97,265 $ 1,775,692
Shares issued to
shareholders in
reinvestment of dividends 13,949 255,545
Shares redeemed (160,639) (2,882,084)
--------------------------
Net decrease (49,425) $ (850,847)
==========================
Year ended October 31, 2008:
Shares sold 328,889 $ 8,186,925
Shares issued to
shareholders in
reinvestment of dividends
and distributions 206,769 5,413,394
Shares redeemed (1,689,076) (37,479,589)
--------------------------
Net decrease (1,153,418) $ (23,879,270)
==========================
</Table>
34 MainStay Balanced Fund
<Table>
<Caption>
CLASS R2 SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 633,487 $ 11,489,690
Shares issued to
shareholders in
reinvestment of dividends 27,191 497,843
Shares redeemed (748,710) (13,831,696)
--------------------------
Net decrease (88,032) $ (1,844,163)
==========================
Year ended October 31, 2008:
Shares sold 1,130,921 $ 28,002,672
Shares issued to
shareholders in
reinvestment of dividends
and distributions 303,929 7,964,832
Shares redeemed (2,307,239) (56,682,663)
--------------------------
Net decrease (872,389) $ (20,715,159)
==========================
<Caption>
CLASS R3 SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 835 $ 15,505
Shares issued to
shareholders in
reinvestment of dividends 23 416
Shares redeemed (62) (1,151)
--------------------------
Net increase 796 $ 14,770
==========================
Year ended October 31, 2008:
Shares sold 1,511 $ 36,871
Shares issued to
shareholders in
reinvestment of dividends
and distributions 120 3,117
Shares redeemed (588) (12,937)
--------------------------
Net increase 1,043 $ 27,051
==========================
</Table>
NOTE 10--NEW ACCOUNTING PRONOUNCEMENTS:
In March 2008, FASB issued the Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS
161"). SFAS 161 is effective for fiscal years and interim periods beginning
after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's
derivative and hedging activities, including how such activities are accounted
for and their effect on the Fund's financial position, performance and cash
flows. Management is currently evaluating the impact the adoption of SFAS 161
will have on the Fund's financial statements and related disclosures.
mainstayinvestments.com 35
BOARD CONSIDERATION AND APPROVAL OF NEW SUBADVISORY AGREEMENT
Section 15(c) of the Investment Company Act of 1940, as amended ("1940 Act")
requires that each mutual fund's board of trustees, including a majority of
trustees who are not "interested persons" of the Fund, as defined in the 1940
Act ("Independent Trustees"), review and approve the fund's investment advisory
agreements. At its meeting on September 25, 2008, the Board of Trustees of
Eclipse Funds (the "Board" of the "Trust"), which was comprised solely of
Independent Trustees, unanimously approved a new subadvisory agreement (the
"Subadvisory Agreement") between New York Life Investment Management LLC ("New
York Life Investments"), manager of the Trust, and Madison Square Investors LLC
("Madison Square Investors") with respect to the equity portion of the MainStay
Balanced Fund (the "Fund"). Madison Square Investors is a new affiliate of New
York Life Investments formed to accommodate a lift-out of New York Life
Investments' Equity Investors Group ("EIG"), a division of New York Life
Investments that historically has provided investment advisory services to the
Fund, effective December 27, 2008 (the "Reorganization"). New York Life
Investments advised the Board that EIG would be better positioned in the
institutional marketplace as a separate investment boutique rather than as a
division of New York Life Investments. In considering the approval of the
Subadvisory Agreement, the Board was provided with information from New York
Life Investments confirming that, in connection with the Reorganization: (i) no
material change in the nature or the level of the services provided to the Fund
would occur; (ii) no increase in the investment advisory fees payable by the
Fund would be implemented; (iii) no material changes were expected in the
personnel responsible for management of the Fund; and (iv) existing shareholders
would be notified of the Reorganization. Furthermore, the Board considered an
opinion from outside counsel to New York Life Investments confirming that the
Subadvisory Agreement did not require shareholder approval.
In reaching its decision to approve the Subadvisory Agreement, the Board
considered a variety of information furnished to the Board from New York Life
Investments. The Board also requested and received responses from New York Life
Investments to a comprehensive list of questions encompassing a variety of
topics prepared on behalf of the Board by independent legal counsel to the
Board. The Board considered its historical experience with EIG's capabilities
and resources, and its evaluation of EIG in connection with previous contract
review processes, including contract review processes that culminated with
approval of the management agreement between the Trust, on behalf of the Fund,
and New York Life Investments in April 2008 and again in June 2008 (the "Prior
Contract Review Processes").
In determining to approve the new Subadvisory Agreement, the members of the
Board reviewed and evaluated all of this information and factors they believed
to be relevant and appropriate in light of legal advice furnished to them by
independent legal counsel and through the exercise of their own business
judgment. The broad factors considered by the Board are discussed in greater
detail below, and included, among other things: (i) the nature, extent, and
quality of the services to be provided to the Fund by Madison Square Investors;
(ii) the investment performance of the Fund and the historical investment
performance of similar funds managed by Madison Square Investors; (iii) the
costs of the services to be provided, and profits to be realized, by Madison
Square Investors from its relationship with the Fund; (iv) the extent to which
economies of scale may be realized as the Fund grows, and the extent to which
economies of scale may benefit the Fund's investors; and (v) the reasonableness
of the Fund's management and subadvisory fee levels and overall total ordinary
operating expenses.
While the members of the Board may have weighed certain factors differently, the
Board's decision to approve the Subadvisory Agreement was based on a
comprehensive consideration of all the information provided to the Board in
connection with its review of the Subadvisory Agreement. A more detailed
discussion of the factors that figured prominently in the Board's decision to
approve the Subadvisory Agreement is provided below.
NATURE, EXTENT, AND QUALITY OF SERVICES TO BE PROVIDED
In considering the approval of the Subadvisory Agreement, the Board examined the
nature, extent and quality of the services that EIG historically had provided to
the Fund, and that Madison Square Investors would provide to the Fund. Based on
information provided to the Board in connection with the Prior Contract Review
Processes, the Board acknowledged EIG's historical service to the Fund, and took
note of the experience of EIG's portfolio managers, the number of accounts
managed by the portfolio managers and EIG's method for compensating portfolio
managers. The Board also considered the experience of senior personnel at EIG.
Based on these considerations, the Board concluded, within the context of its
overall determinations regarding the Subadvisory Agreement, that the Fund is
likely to benefit from the nature, extent and quality of these services as a
result of Madison Square Investors' experience, personnel, operations and
resources.
INVESTMENT PERFORMANCE
In evaluating investment performance, the Board took note of the Fund's
historical investment performance results, as presented to the Board in
connection with the Prior Contract Review Processes, with consideration for the
Fund's investment objectives, strategies and risks, as disclosed in the Fund's
prospectus. The Board considered information about the Fund's investment
performance that is provided to the Board in connection with its regularly
scheduled meetings, and also took note of information provided in connection
with the Prior Contract Review Processes showing the investment performance of
the Fund as compared to similar mutual funds managed by other investment
advisers. The
36 MainStay Balanced Fund
Board also considered the strength of Madison Square Investors' resources
(including research capabilities). Based on these considerations, the Board
concluded, within the context of its overall determinations regarding the
Subadvisory Agreement, that the selection of Madison Square Investors as
subadviser to the Fund is likely to benefit the Fund's long-term investment
performance.
COSTS OF THE SERVICES TO BE PROVIDED BY MADISON SQUARE INVESTORS
The Board considered the estimated costs of the services and profits to be
realized by Madison Square Investors under the Subadvisory Agreement, taking
into account profitability information provided to the Board in connection with
the Prior Contract Review Processes. Because Madison Square Investors is an
affiliate of New York Life Investments whose subadvisory fees for advising the
Fund will be paid directly by New York Life Investments, the Board considered
the cost and profitability information for New York Life Investments and Madison
Square Investors in the aggregate. In evaluating these estimated costs and
profits, the Board considered, among other things, EIG's investments in
personnel, systems, equipment and other resources necessary to manage the Fund.
The Board acknowledged that Madison Square Investors must be in a position to
pay and retain experienced professional personnel to provide services to the
Fund, and that Madison Square Investors' ability to maintain a strong financial
position is important in order for Madison Square Investors to provide high-
quality ongoing services to the Fund and its shareholders.
The Board also considered certain fall-out benefits that may be realized by
Madison Square Investors due to its relationship with the Fund. The Board
recognized, for example, the benefits to Madison Square Investors from legally
permitted "soft-dollar" arrangements by which brokers may provide research and
other services to Madison Square Investors in exchange for commissions paid by
the Fund with respect to trades on the Fund's portfolio securities.
After evaluating the information presented to the Board, the Board concluded,
within the context of its overall determinations regarding the Subadvisory
Agreement, that any profits realized by Madison Square Investors due to its
relationship with the Fund will be fair and reasonable.
EXTENT TO WHICH ECONOMIES OF SCALE MAY BE REALIZED AS THE FUND GROWS
The Board also considered whether the Fund's expense structure permitted
economies of scale to be shared with the Fund's investors. Based on information
provided to the Board in connection with the Prior Contract Review Processes,
the Board took note of the extent to which the Fund benefits from economies of
scale through expense waivers and reimbursements. The Board also observed that
New York Life Investments historically has subsidized the Fund's overall
expenses through the operation of contractual expense limitations that may be
lifted only with prior approval of the Board.
Based on this information, the Board concluded, within the context of its
overall determinations regarding the Subadvisory Agreement, that the Fund's fee
schedule and expense structure appropriately reflect economies of scale for the
benefit of the Fund's investors. The Board noted, however, that it would
continue to evaluate the reasonableness of the Fund's expense structure as the
Fund continues to grow over time.
MANAGEMENT AND SUBADVISORY FEES AND TOTAL ORDINARY OPERATING EXPENSES
The Board considered the reasonableness of the fees to be paid under the
existing management and new Subadvisory Agreement, and the Fund's total ordinary
operating expenses. The Board considered that the fees to be paid to Madison
Square Investors under the Subadvisory Agreement are paid by New York Life
Investments, not the Fund, and will result in no increase in the Fund's
expenses. The Board noted that New York Life Investments will retain half of its
management fee under the new Subadvisory Agreement with Madison Square
Investors, consistent with the management and subadvisory fee structure used for
other subadvisory relationships between New York Life Investments and its
affiliates.
In assessing the reasonableness of the Fund's management and subadvisory fees
and total ordinary operating expenses, the Board took note of fee and expense
arrangements that had been negotiated by the Board with New York Life
Investments in recent years and observed that New York Life Investments has
subsidized the total ordinary operating expenses of the Fund's share classes
through the imposition of expense limitation arrangements that may be modified
only with the prior approval of the Board.
Based on these considerations, the Board concluded that the Fund's management
and subadvisory fees and total ordinary operating expenses were within a range
that is competitive and, within the context of the Board's overall conclusions
regarding the Subadvisory Agreement, supports the conclusion that these fees to
be paid under the Subadvisory Agreement are reasonable.
CONCLUSION
On the basis of the information provided to it and its evaluation thereof, the
Board, which consisted entirely of Independent Trustees, unanimously approved
the new Subadvisory Agreement with Madison Square Investors.
mainstayinvestments.com 37
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
A description of the policies and procedures that New York Life Investments uses
to vote proxies related to the Fund's securities is available without charge,
upon request, (i) by visiting the Funds's website at mainstayinvestments.com;
and (ii) on the Securities and Exchange Commission's ("SEC") website at
www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-
month period ending June 30 on Form N-PX. The Fund's most recent Form N-PX is
available free of charge upon request by calling 800-MAINSTAY (624-6782);
visiting the Funds' website at mainstayinvestments.com; or on the SEC's website
at www.sec.gov.
SHAREHOLDER REPORTS AND QUARTERLY PORTFOLIO DISCLOSURE
The Fund is required to file its complete schedule of portfolio holdings with
the SEC for its first and third fiscal quarters on Form N-Q. The Funds' Form N-Q
is available without charge, on the SEC's website at www.sec.gov or by calling
MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review
copies of Form N-Q by visiting the SEC's Public Reference Room in Washington, DC
(information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330).
38 MainStay Balanced Fund
MAINSTAY FUNDS
MAINSTAY OFFERS A WIDE RANGE OF FUNDS FOR VIRTUALLY ANY INVESTMENT NEED. THE
FULL ARRAY OF MAINSTAY OFFERINGS IS LISTED HERE, WITH INFORMATION ABOUT THE
MANAGER, SUBADVISORS, LEGAL COUNSEL, AND INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.
EQUITY FUNDS
MAINSTAY 130/30 CORE FUND
MAINSTAY 130/30 GROWTH FUND
MAINSTAY ALL CAP GROWTH FUND
MAINSTAY CAPITAL APPRECIATION FUND
MAINSTAY COMMON STOCK FUND
MAINSTAY EQUITY INDEX FUND(1)
MAINSTAY GROWTH EQUITY FUND
MAINSTAY ICAP EQUITY FUND
MAINSTAY ICAP SELECT EQUITY FUND
MAINSTAY LARGE CAP GROWTH FUND
MAINSTAY MAP FUND
MAINSTAY MID CAP GROWTH FUND
MAINSTAY MID CAP CORE FUND
MAINSTAY MID CAP VALUE FUND
MAINSTAY S&P 500 INDEX FUND
MAINSTAY SMALL CAP GROWTH FUND
MAINSTAY SMALL COMPANY VALUE FUND
MAINSTAY VALUE FUND
INCOME FUNDS
MAINSTAY 130/30 HIGH YIELD FUND
MAINSTAY CASH RESERVES FUND
MAINSTAY DIVERSIFIED INCOME FUND
MAINSTAY FLOATING RATE FUND
MAINSTAY GOVERNMENT FUND
MAINSTAY HIGH YIELD CORPORATE BOND FUND
MAINSTAY INDEXED BOND FUND
MAINSTAY INSTITUTIONAL BOND FUND
MAINSTAY INTERMEDIATE TERM BOND FUND
MAINSTAY MONEY MARKET FUND
MAINSTAY PRINCIPAL PRESERVATION FUND
MAINSTAY SHORT TERM BOND FUND
MAINSTAY TAX FREE BOND FUND
BLENDED FUNDS
MAINSTAY BALANCED FUND
MAINSTAY CONVERTIBLE FUND
MAINSTAY INCOME MANAGER FUND
MAINSTAY TOTAL RETURN FUND
INTERNATIONAL FUNDS
MAINSTAY 130/30 INTERNATIONAL FUND
MAINSTAY GLOBAL HIGH INCOME FUND
MAINSTAY ICAP GLOBAL FUND
MAINSTAY ICAP INTERNATIONAL FUND
MAINSTAY INTERNATIONAL EQUITY FUND
ASSET ALLOCATION FUNDS
MAINSTAY CONSERVATIVE ALLOCATION FUND
MAINSTAY GROWTH ALLOCATION FUND
MAINSTAY MODERATE ALLOCATION FUND
MAINSTAY MODERATE GROWTH ALLOCATION FUND
RETIREMENT FUNDS
MAINSTAY RETIREMENT 2010 FUND
MAINSTAY RETIREMENT 2020 FUND
MAINSTAY RETIREMENT 2030 FUND
MAINSTAY RETIREMENT 2040 FUND
MAINSTAY RETIREMENT 2050 FUND
MANAGER
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
NEW YORK, NEW YORK
SUBADVISORS
INSTITUTIONAL CAPITAL LLC(2)
CHICAGO, ILLINOIS
MACKAY SHIELDS LLC(2)
NEW YORK, NEW YORK
MADISON SQUARE INVESTORS LLC(2)
NEW YORK, NEW YORK
MARKSTON INTERNATIONAL LLC
WHITE PLAINS, NEW YORK
STANDISH MELLON ASSET MANAGEMENT COMPANY LLC
BOSTON, MASSACHUSETTS
WINSLOW CAPITAL MANAGEMENT, INC.
MINNEAPOLIS, MINNESOTA
LEGAL COUNSEL
DECHERT LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
PLEASE CONTACT YOUR INVESTMENT PROFESSIONAL OR CALL 800-MAINSTAY (624-6782) FOR
A FREE PROSPECTUS. INVESTORS ARE ASKED TO CONSIDER THE INVESTMENT OBJECTIVES,
RISKS, AND CHARGES AND EXPENSES OF THE INVESTMENT CAREFULLY BEFORE INVESTING.
THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION ABOUT THE INVESTMENT COMPANY.
PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
1. Closed to new investors and new purchases as of January 1, 2002.
2. An affiliate of New York Life Investment Management LLC.
Not part of the Semiannual Report
<Table>
<Caption>
-----------------------------------------------------
Not FDIC insured. No bank guarantee. May lose value.
</Table>
NYLIFE DISTRIBUTORS LLC, 169 LACKAWANNA AVENUE,
PARSIPPANY, NEW JERSEY 07054
This report may be distributed only when preceded or accompanied
by a current Fund prospectus.
mainstayinvestments.com Eclipse Funds
(C) 2009 by NYLIFE Distributors LLC. All rights reserved.
SEC File Number: 811-04847
NYLIM-AO15868 (RECYCLE LOGO) MS140-09 MSBL10-06/09
B7
(MAINSTAY INVESTMENTS LOGO)
MAINSTAY
MID CAP CORE FUND
Message from the President
and
Semiannual Report
Unaudited
April 30, 2009
MESSAGE FROM THE PRESIDENT
The six-month period ended April 30, 2009, proved to be a historically volatile
time for the U.S. economy. Earlier in the year, many financial companies faced
setbacks and market liquidity dried up. Fortunately, the U.S. Treasury, the
Federal Reserve and other central banks and agencies worked together in an
effort to restore investor confidence.
Gross domestic product continued to decline in the fourth quarter of 2008 and
the first quarter of 2009. Fortunately, first-quarter earnings reports for
several companies, especially financials, were not as bad as some had earlier
feared. A rally in the retailing industry suggested that consumer spending might
revive. And preliminary first-quarter data from the Bureau of Economic Analysis
showed that personal consumption expenditures helped soften the economy's rate
of decline in the first quarter of 2009.
Although the stock market rallied from late November through early January, it
then declined through early March, with some major market indexes and averages
reaching levels that investors hadn't seen in more than 12 years. By March 9,
2009, many investors felt that the market had reached its low point, and the
stock market gradually recovered a good deal of what it had lost--not enough,
however, to end the reporting period in positive territory.
In the bond market, the earlier flight toward low-risk investments softened as
the Federal Open Market Committee reduced the targeted federal funds rate to a
range between 0% and 0.25%. With strong government support, including the
promise of purchases by the Federal Reserve, the mortgage-backed and asset-
backed securities markets began to regain their footing. Trillions of dollars
were poured into the markets, risk aversion softened and higher-yielding
securities gained substantial ground. Indeed, most fixed-income sectors recorded
positive returns for the six-month reporting period. This trend was encouraging
news for bond investors.
Throughout the reporting period, the portfolio managers of the MainStay Funds
continued to pursue the investment objectives, strategies and processes of their
respective Funds. Some were able to identify opportunities, reposition Fund
holdings, or otherwise take advantage of a difficult market environment. With a
steadfast focus on long-term investment potential, our portfolio managers sought
to weather market volatility and maintain a positive outlook.
Investors concerned about recent market events might benefit from their example.
With careful investing, appropriate diversification, gradual adjustments,
continual reevaluation and ongoing assistance from a financial professional,
investors may be able to improve the way they pursue their long-range goals.
At MainStay, we are pleased to be a part of your investment program, and we hope
that you will continue to invest with us for many years to come. While past
performance is no guarantee of future results, we are encouraged when the
economy provides positive indicators. Like you, we look forward to better days
ahead.
Sincerely,
/s/ STEPHEN P. FISHER
Stephen P. Fisher
President
Not part of the Semiannual Report
(MAINSTAY INVESTMENTS LOGO)
MAINSTAY
MID CAP CORE FUND
MainStay Funds
Semiannual Report
Unaudited
April 30, 2009
TABLE OF CONTENTS
<Table>
SEMIANNUAL REPORT
- ---------------------------------------------
INVESTMENT AND PERFORMANCE COMPARISON 5
- ---------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION AND
ANALYSIS 10
- ---------------------------------------------
PORTFOLIO OF INVESTMENTS 12
- ---------------------------------------------
FINANCIAL STATEMENTS 18
- ---------------------------------------------
NOTES TO FINANCIAL STATEMENTS 25
- ---------------------------------------------
BOARD CONSIDERATION AND APPROVAL OF NEW
SUBADVISORY AGREEMENT 32
- ---------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES AND
PROXY VOTING RECORD 34
- ---------------------------------------------
SHAREHOLDER REPORTS AND QUARTERLY
PORTFOLIO DISCLOSURE 34
INVESTMENT AND PERFORMANCE COMPARISON(1)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE, AND AS A RESULT, WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE INFORMATION CURRENT
TO THE MOST RECENT MONTH-END, PLEASE CALL 800-MAINSTAY (624-6782) OR VISIT
MAINSTAYINVESTMENTS.COM.
INVESTOR CLASS SHARES(2)--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- ---------------------------------------------------------------
With sales charges -6.56% -37.49% -3.37% 1.22%
Excluding sales charges -1.13 -33.85 -2.27 1.79
</Table>
(With sales charges)
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY MID
CAP CORE RUSSELL MIDCAP
FUND INVESTOR (R) VALUE RUSSELL MIDCAP
CLASS INDEX INDEX
------------- -------------- --------------
4/30/99 9450 10000 10000
8415 9551 11601
9712 11423 11634
10789 12384 11552
9474 10714 9919
12657 14456 13436
14314 17391 15401
17352 21695 19469
19728 25959 22437
17059 22934 21016
4/30/09 11284 14503 13443
</Table>
CLASS A SHARES(3)--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- ---------------------------------------------------------------
With sales charges -6.50% -37.41% -3.35% 1.23%
Excluding sales charges -1.06 -33.76 -2.25 1.80
</Table>
(With sales charges)
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY MID
CAP CORE RUSSELL MIDCAP
FUND CLASS (R) VALUE RUSSELL MIDCAP
A INDEX INDEX
------------ -------------- --------------
4/30/99 23625 25000 25000
21038 23878 29003
24280 28558 29085
26973 30961 28880
23685 26785 24798
31644 36139 33590
35786 43477 38502
43380 54237 48673
49320 64897 56093
42647 57334 52540
4/30/09 28247 36256 33607
</Table>
CLASS B SHARES(3)--MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- ---------------------------------------------------------------
With sales charges -6.38% -37.60% -3.29% 1.03%
Excluding sales charges -1.47 -34.33 -2.99 1.03
</Table>
(With sales charges)
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY MID
CAP CORE RUSSELL MIDCAP
FUND CLASS (R) VALUE RUSSELL MIDCAP
B INDEX INDEX
------------ -------------- --------------
4/30/99 10000 10000 10000
8831 9551 11601
10119 11423 11634
11156 12384 11552
9726 10714 9919
12893 14456 13436
14477 17391 15401
17417 21695 19469
19653 25959 22437
16866 22934 21016
4/30/09 11075 14503 13443
</Table>
1. Performance tables and graphs do not reflect any deduction of taxes that a
shareholder would pay on distributions or Fund-share redemptions. Total
returns reflect maximum applicable sales charges explained in this paragraph,
change in share price, and reinvestment of dividend and capital gain
distributions. The graphs assume an initial investment of $25,000 for Class A
shares and $10,000 for all other classes and reflect the deduction of all
sales charges that would have applied for the period of investment. Class A
shares generally have a $25,000 minimum initial investment with no minimum
subsequent purchase amount. For investors that, in the aggregate, have assets
of $100,000 or more invested in any share classes of any of the MainStay
Funds, the minimum initial investment is $15,000. Investor Class shares and
Class A shares are sold with a maximum initial sales charge of 5.50% and an
annual 12b-1 fee of 0.25%. Class B shares are sold with no initial sales
charge, are subject to a contingent deferred sales charge ("CDSC") of up to
5.00% if redeemed within the first six years of purchase, and have an annual
12b-1 fee of 1.00%. Class C shares are sold with no initial sales charge, are
subject to a CDSC of 1.00% if redeemed within one year of purchase, and have
an annual 12b-1 fee of 1.00%. Class I shares are sold with no initial sales
charge or CDSC, have no annual 12b-1 fee, and are generally available to
corporate and institutional investors or individual investors with a minimum
initial investment of $5 million. Class R3 shares are sold with no initial
sales charge or CDSC, have an annual 12b-1 fee of 0.50% and are available in
certain individual retirement accounts or in certain retirement plans.
Performance figures reflect certain fee waivers and/or expense limitations,
without which total returns may have been lower. These fee waivers and/or
expense limitations are contractual and may be modified or terminated only
with the approval of the Board of Trustees. The Manager may recoup
THE FOOTNOTES ON THE NEXT TWO PAGES ARE AN INTEGRAL PART OF THE TABLES AND
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
mainstayinvestments.com 5
CLASS C SHARES(4)--MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- ---------------------------------------------------------------
With sales charges -2.51% -35.00% -3.02% 1.03%
Excluding sales charges -1.53 -34.35 -3.02 1.03
</Table>
(With sales charges)
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY MID
CAP CORE
FUND CLASS RUSSELL MIDCAP(R) RUSSELL MIDCAP
C VALUE INDEX INDEX
------------ ----------------- --------------
4/30/99 10000 10000 10000
8829 9551 11601
10118 11423 11634
11156 12384 11552
9737 10714 9919
12913 14456 13436
14487 17391 15401
17430 21695 19469
19668 25959 22437
16876 22934 21016
4/30/09 11079 14503 13443
</Table>
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- ---------------------------------------------------------------
-0.88% -33.57% -1.91% 2.10%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY MID
CAP CORE
FUND CLASS RUSSELL MIDCAP(R) RUSSELL MIDCAP
I VALUE INDEX INDEX
------------ ----------------- --------------
4/30/99 10000 10000 10000
8924 9551 11601
10328 11423 11634
11499 12384 11552
10126 10714 9919
13555 14456 13436
15395 17391 15401
18728 21695 19469
21356 25959 22437
18526 22934 21016
4/30/09 12308 14503 13443
</Table>
CLASS R3 SHARES(5)--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- ---------------------------------------------------------------
-1.23% -33.98% -2.50% 1.49%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY MID
CAP CORE
FUND CLASS RUSSELL MIDCAP(R) RUSSELL MIDCAP
R3 VALUE INDEX INDEX
------------ ----------------- --------------
4/30/99 10000 10000 10000
8870 9551 11601
10204 11423 11634
11293 12384 11552
9886 10714 9919
13154 14456 13436
14850 17391 15401
17957 21695 19469
20354 25959 22437
17554 22934 21016
4/30/09 11589 14503 13443
</Table>
the amount of certain management fee waivers or expense reimbursements from
the Fund pursuant to the contract if such action does not cause the Fund to
exceed existing expense limitations and the recoupment is made within three
years after the year in which the Manager incurred the expense.
2. Performance figures for Investor Class shares, first offered on February 28,
2008, include the historical performance of Class A shares through February
27, 2008, adjusted for differences in certain contractual expenses and fees.
Unadjusted, the performance shown for Investor Class shares might have been
lower.
3. Performance figures for Class A and B shares, first offered on January 1,
2004, include the historical performance of Class I shares through December
31, 2003, adjusted for differences in certain contractual expenses and fees.
Unadjusted, the performance shown for Class A and B shares might have been
lower.
4. Performance figures for Class C shares, first offered on January 1, 2004,
include the historical performance of the L Class shares (which were
redesignated as Class C shares on January 1, 2004) from December 30, 2002,
through December 31, 2003, and the historical performance of the Class I
shares through December 29, 2002, adjusted for differences in certain
contractual expenses and fees. Unadjusted, the performance shown for Class C
shares might have been lower.
5. Performance figures for Class R3 shares, first offered to the public on April
28, 2006, include the performance of Class I shares through April 27, 2006,
adjusted for differences in certain contractual expenses and fees.
Unadjusted, the performance shown for Class R3 shares might have been lower.
THE FOOTNOTES ON THE PRECEDING PAGE AND THE FOLLOWING PAGE ARE AN INTEGRAL PART
OF THE TABLES AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
6 MainStay Mid Cap Core Fund
<Table>
<Caption>
BENCHMARK PERFORMANCE SIX ONE FIVE TEN
MONTHS YEAR YEARS YEARS
Russell Midcap(R) Index(6) -1.64% -36.03% 0.01% 3.00%
Russell Midcap(R) Value Index(7) -6.14 -36.76 0.06 3.79
Average Lipper mid-cap core fund(8) -1.87 -33.98 -1.03 3.53
</Table>
6. The Russell Midcap(R) Index measures the performance of the 800 smallest
companies in the Russell 1000(R) Index, and represents approximately 31% of
the total market capitalization of the Russell 1000(R) Index. Total returns
assume reinvestment of all dividends and capital gains. Effective September
29, 2008, the Fund selected the Russell Midcap(R) Index as its primary
benchmark in replacement of the Russell Midcap(R) Value Index, which the Fund
retained as its secondary benchmark. The Fund selected the Russell Midcap(R)
Index because it believes that this index is more reflective of the Fund's
investment style. The Russell Midcap(R) Value Index is the Fund's broad-based
securities market index for comparison purposes. An investment cannot be made
directly in an index.
7. The Russell Midcap(R) Value Index measures the performance of those Russell
Midcap(R) companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000(R) Value
Index. Total returns assume reinvestment of all dividends and capital gains.
An Investment cannot be made directly in an index.
8. The average Lipper mid-cap core fund is representative of funds that, by
portfolio practice, invest at least 75% of their equity assets in companies
with market capitalizations (on a three-year weighted basis) below Lipper's
U.S. Diversified Equity large-cap floor. Mid-cap core funds typically have a
below-average price-to-earnings ratio, price-to-book ratio, and three-year
sales-per-share growth value, compared to the S&P MidCap 400 Index. This
benchmark is a product of Lipper Inc. Lipper Inc. is an independent monitor
of fund performance. Results are based on average total returns of similar
funds with all dividend and capital gain distributions reinvested.
THE FOOTNOTES ON THE PRECEDING TWO PAGES ARE AN INTEGRAL PART OF THE TABLES AND
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
mainstayinvestments.com 7
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY MID CAP CORE FUND
- --------The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from November 1, 2008, to April 30,
2009, and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, exchange fees, and sales charges (loads) on
purchases (as applicable), and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses (as
applicable). This example is intended to help you understand your ongoing costs
(in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds. The example is based on an
investment of $1,000 made at the beginning of the six-month period and held for
the entire period from November 1, 2008, to April 30, 2009.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested, to estimate the expenses that
you paid during the six-months ended April 30, 2009. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 11/1/08 4/30/09 PERIOD(1) 4/30/09 PERIOD(1)
INVESTOR CLASS SHARES $1,000.00 $988.70 $ 7.15 $1,017.60 $ 7.25
- --------------------------------------------------------------------------------------------------------
CLASS A SHARES $1,000.00 $989.40 $ 6.66 $1,018.10 $ 6.76
- --------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $985.30 $10.83 $1,013.90 $10.99
- --------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $984.70 $10.83 $1,013.90 $10.99
- --------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $991.20 $ 5.13 $1,019.60 $ 5.21
- --------------------------------------------------------------------------------------------------------
CLASS R3 SHARES $1,000.00 $987.70 $ 8.08 $1,016.70 $ 8.20
- --------------------------------------------------------------------------------------------------------
1. Expenses are equal to the Fund's annualized expense ratio of each class
(1.45% for Investor Class, 1.35% for Class A, 2.20% for Class B and Class C,
1.04% for Class I and 1.64% for Class R3) multiplied by the average account
value over the period, divided by 365 and multiplied by 181 (to reflect the
one-half year period). The table above represents the actual expenses
incurred during the one-half year period.
8 MainStay Mid Cap Core Fund
INDUSTRY COMPOSITION AS OF APRIL 30, 2009
<Table>
<Caption>
Insurance 7.5%
Specialty Retail 6.0
Household Durables 4.6
IT Services 4.5
Software 4.5
Machinery 4.4
Health Care Providers & Services 4.2
Semiconductors & Semiconductor
Equipment 3.8
Capital Markets 3.4
Energy Equipment & Services 3.1
Media 3.1
Oil, Gas & Consumable Fuels 3.0
Multiline Retail 2.8
Pharmaceuticals 2.7
Electronic Equipment & Instruments 2.6
Computers & Peripherals 2.3
Real Estate Investment Trusts 2.2
Hotels, Restaurants & Leisure 2.1
Multi-Utilities 1.9
Diversified Consumer Services 1.8
Health Care Equipment & Supplies 1.8
Food Products 1.6
Professional Services 1.6
Aerospace & Defense 1.5
Chemicals 1.5
Construction & Engineering 1.5
Independent Power Producers &
Energy Traders 1.4
Commercial Banks 1.2
Textiles, Apparel & Luxury Goods 1.1
Household Products 1.0
Metals & Mining 1.0
Beverages 0.9
Communications Equipment 0.9
Electrical Equipment 0.9
Containers & Packaging 0.8
Gas Utilities 0.8
Internet Software & Services 0.7
Paper & Forest Products 0.7
Commercial Services & Supplies 0.6
Food & Staples Retailing 0.6
Life Sciences Tools & Services 0.6
Electric Utilities 0.5
Leisure Equipment & Products 0.5
Water Utilities 0.5
Airlines 0.4
Consumer Finance 0.4
Diversified Telecommunication
Services 0.4
Trading Companies & Distributors 0.4
Building Products 0.3
Internet & Catalog Retail 0.3
Wireless Telecommunication Services 0.3
Auto Components 0.2
Biotechnology 0.2
Health Care Technology 0.2
Personal Products 0.2
Thrifts & Mortgage Finance 0.2
Diversified Financial Services 0.1
Marine 0.1
Road & Rail 0.1
Tobacco 0.1
Industrial Conglomerates 0.0++
Exchange Traded Fund 1.2
Short-Term Investment 0.3
Liabilities in Excess of Cash and
Other Assets -0.1
-----
100.0%
=====
</Table>
See Portfolio of Investment on page 12 for specific holdings within these
categories.
++ Less than one-tenth of a percent.
TOP TEN HOLDINGS AS OF APRIL 30, 2009 (EXCLUDING SHORT-TERM INVESTMENT)
<Table>
1. S&P MidCap 400 Index--MidCap SPDR Trust
Series 1
2. Broadcom Corp. Class A
3. PG&E Corp.
4. Western Digital Corp.
5. Parker Hannifin Corp.
6. Murphy Oil Corp.
7. D.R. Horton, Inc.
8. Cameron International Corp.
9. Quest Diagnostics, Inc.
10. Liberty Media Corp. Entertainment Class
A
</Table>
mainstayinvestments.com 9
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
QUESTIONS ANSWERED BY PORTFOLIO MANAGERS HARVEY FRAM, CFA, AND MIGENE KIM, CFA,
OF MADISON SQUARE INVESTORS LLC, THE FUND'S SUBADVISOR.
HOW DID MAINSTAY MID CAP CORE FUND (FORMERLY MAINSTAY MID CAP OPPORTUNITY FUND)
PERFORM RELATIVE TO ITS PEERS AND ITS BENCHMARK FOR THE SIX MONTHS ENDED APRIL
30, 2009?
Excluding all sales charges, MainStay Mid Cap Core Fund returned -1.13% for
Investor Class shares, -1.06% for Class A shares, -1.47% for Class B shares and
- -1.53% for Class C shares for the six months ended April 30, 2009. Over the same
period, Class I shares returned -0.88% and Class R3 shares returned -1.23%. All
share classes outperformed the -1.87% return of the average Lipper(1) mid-cap
core fund and the -1.64% return of the Russell Midcap(R) Index(2) for the six
months ended April 30, 2009. The Russell Midcap(R) Index is the Fund's broad-
based securities-market index. See pages 5 and 6 for Fund returns with sales
charges.
WHAT FACTORS WERE PRIMARILY RESPONSIBLE FOR THE FUND'S RELATIVE PERFORMANCE
DURING THE REPORT-ING PERIOD?
Avoiding regional banks, such as Regions Financial and KeyCorp, in the
financials sector was a key contributor to the Fund's performance relative to
the Russell Midcap(R) Index. In a recessionary environment, the Fund's
overweight positions in certain consumer discretionary stocks, such as discount
retailers, Family Dollar Stores and Dollar Tree, also helped the Fund's relative
performance.
WHICH SECTORS HAD THE STRONGEST POSITIVE IMPACT ON THE FUND'S RELATIVE
PERFORMANCE DURING THE REPORTING PERIOD, AND WHICH SECTORS WERE THE WEAKEST?
Relative to the Russell Midcap(R) Index, the sectors that made the strongest
contributions to the Fund's performance were financials, information technology
and consumer discretionary.
The sectors that detracted most from the Fund's performance relative to the
Russell Midcap(R) Index were energy, health care and consumer staples. In
general, the Fund owned the more conservative energy stocks during the reporting
period, and this positioning hurt the Fund's performance as oil prices declined.
The Fund's underweight positions in both consumer staples and health care during
much of the reporting period also hurt, as these sectors proved to be relatively
recession-resistant.
DURING THE REPORTING PERIOD, WHICH STOCKS WERE THE FUND'S BEST ABSOLUTE
PERFORMERS, AND WHICH STOCKS WERE THE WEAKEST?
On an absolute basis, the Fund's strongest performers during the reporting
period were homebuilder D.R. Horton, retailer J.C. Penney and data storage
device manufacturer Western Digital. D.R. Horton's stock jumped--along with
stocks of other builders--on anticipation of a turnaround in housing sales. J.C.
Penney saw strength in the highly discretionary home-goods category as consumer
confidence rose and food and energy prices declined. Western Digital experienced
profit increases as the company diversified beyond the desktop computer market
into hard drives for mobile devices, DVRs and other consumer electronics
products.
The Fund's weakest absolute performers were Southwest Airlines, Principal
Financial Group and specialty chemical company Ashland. The stock price of
Dallas-based Southwest Airlines declined as travel demand dropped in a slowing
economy. Principal Financial Group suffered because of capitalization concerns
and industry-wide pressures on investments and operating earnings. Ashland saw
its stock price deteriorate in a depressed demand environment that drove down
volumes across the company's entire business. Although we sold the Fund's
position in Ashland during the reporting period, doing so hurt the Fund when the
stock rallied in March and April.
DID THE FUND MAKE ANY SIGNIFICANT PURCHASES OR SALES DURING THE REPORTING
PERIOD?
The Fund looks for stocks with attractive relative valuations, strong operating
results and positive price trends. Among the stocks that fit the Fund's purchase
criteria during the reporting period were oil services company Diamond Offshore
Drilling and beverage-
- ----------
Investments in common stocks and other equity securities are particularly
subject to the risk of changing economic, stock market, industry and company
conditions and the risks inherent in management's ability to anticipate such
changes that can adversely affect the value of the Fund's holdings. Mid-
capitalization stocks are generally less established and may be more volatile
and less liquid than the stocks of larger companies. The principal risk of
growth stocks is that investors expect growth companies to increase their
earnings at a rate that is generally higher than the rate expected for nongrowth
companies. If these expectations are not met, the market price for the stock may
decline significantly, even if earnings showed an absolute increase. Growth
company stocks also typically lack the dividend yield that can cushion stock
prices in market downturns. The principal risk of investing in value stocks is
that they may never reach what the portfolio manager believes is their full
value or that they may go down in value. The Fund may experience a portfolio
turnover rate of more than 100% and may generate taxable short-term capital
gains.
1. See footnote on page 7 for more information about Lipper Inc.
2. See footnote on page 7 for more information on the Russell Midcap(R) Index.
10 MainStay Mid Cap Core Fund
industry holding company Hansen Natural. The recent oil boom spurred the largest
expansion in offshore drilling since the 1970s. Diamond Offshore Drilling has
benefited from significant demand for its 45 deepwater oil rigs, which it
contracts to major oil companies. During the past three years, Diamond Offshore
Drilling has experienced exceptional annual growth rates and profit increases.
Hansen Natural has been successfully winning over thirsty energy-drink fans with
its Monster canned beverages.
During the reporting period, we sold the Fund's positions in medical and
specialty gas distributor Airgas and electric utility Edison International.
Airgas suffered from lower demand. Edison International's stock was hurt as
energy prices fell during the reporting period.
WERE THERE ANY NOTABLE CHANGES IN THE FUND'S WEIGHTINGS DURING THE REPORTING
PERIOD?
Weighting changes in the Fund result from a combination of security performance
and the Fund's proprietary quantitative security-selection process. During the
reporting period, the Fund's weightings increased in the consumer discretionary
and financials sectors. The Fund's quantitative model pointed to several
financial stocks as undervalued stocks with improving credit spreads and good
earnings quality. In the consumer discretionary sector, our model found apparel
retail stocks, such as The Gap, to be attractive.
During the reporting period, we decreased the Fund's weightings in the energy
and telecommunication services sectors. We trimmed the Fund's energy holdings as
oil prices declined. The Fund's model indicated that the telecommunication
services sector was having a difficult time in the recessionary environment.
HOW WAS THE FUND POSITIONED AT THE END OF THE REPORTING PERIOD?
As of April 30, 2009, the Fund's largest overweight positions relative to the
Russell Midcap(R) Index were information technology and consumer discretionary.
According to our model, many technology stocks showed attractive valuations. As
mentioned earlier, our model also found apparel retail stocks attractive.
On the same date, the Fund was underweight relative to the Russell Midcap(R)
Index in consumer staples and utilities. Many of the stocks in these sectors
were purchased by portfolio managers searching for safety. As a result, we
believe that these stocks have become relatively expensive.
- ----------
The opinions expressed are those of the portfolio managers as of the date of
this report and are subject to change. There is no guarantee that any forecast
made will come to pass. This material does not constitute investment advice and
is not intended as an endorsement of any specific investment.
mainstayinvestments.com 11
PORTFOLIO OF INVESTMENTS APRIL 30, 2009 UNAUDITED
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS 98.6%+
- ------------------------------------------------------------
AEROSPACE & DEFENSE 1.5%
Goodrich Corp. 3,881 $ 171,851
ITT Corp. 3,330 136,563
L-3 Communications Holdings,
Inc. 737 56,123
Precision Castparts Corp. 5,569 416,895
-------------
781,432
-------------
AIRLINES 0.4%
Continental Airlines, Inc.
Class B (a) 1,582 16,643
Copa Holdings S.A. 2,914 89,314
Delta Air Lines, Inc. (a) 9,679 59,719
Southwest Airlines Co. 4,753 33,176
-------------
198,852
-------------
AUTO COMPONENTS 0.2%
BorgWarner, Inc. 1,630 47,189
Federal Mogul Corp. (a) 3,468 38,495
WABCO Holdings, Inc. 351 5,612
-------------
91,296
-------------
BEVERAGES 0.9%
Coca-Cola Enterprises, Inc. 3,576 61,006
Hansen Natural Corp. (a) 8,547 348,376
Pepsi Bottling Group, Inc.
(The) 1,789 55,942
-------------
465,324
-------------
BIOTECHNOLOGY 0.2%
Cephalon, Inc. (a) 1,548 101,564
-------------
BUILDING PRODUCTS 0.3%
Armstrong World Industries,
Inc. (a) 824 14,980
Lennox International, Inc. 3,694 117,802
-------------
132,782
-------------
CAPITAL MARKETS 3.4%
Ameriprise Financial, Inc. 8,218 216,544
Federated Investors, Inc.
Class B 6,028 137,921
Invesco, Ltd. 25,721 378,613
Investment Technology Group,
Inc. (a) 6,446 146,840
Lazard, Ltd. Class A 1,220 33,306
MF Global, Ltd. (a) 14,827 90,445
Northern Trust Corp. 3,933 213,798
Raymond James Financial, Inc. 6,944 108,951
SEI Investments Co. 4,463 62,616
TD Ameritrade Holding Corp.
(a) 20,568 327,237
Waddell & Reed Financial, Inc.
Class A 1,294 28,998
-------------
1,745,269
-------------
CHEMICALS 1.5%
CF Industries Holdings, Inc. 831 59,873
Eastman Chemical Co. 2,593 102,890
Nalco Holding Co. 2,205 35,986
Scotts Miracle-Gro Co. (The)
Class A 5,336 180,197
Terra Industries, Inc. 6,744 178,716
Valspar Corp. 8,166 195,984
-------------
753,646
-------------
COMMERCIAL BANKS 1.2%
Associated Banc-Corp. 6,296 97,399
BancorpSouth, Inc. 2,735 63,589
BOK Financial Corp. 88 3,314
CapitalSource, Inc. 8,853 27,356
Commerce Bancshares, Inc. 663 21,945
Cullen/Frost Bankers, Inc. 748 35,223
First Citizens BancShares,
Inc. Class A 187 22,378
First Horizon National Corp. 3,406 39,203
Huntington Bancshares, Inc. 19,696 54,952
Provident Bankshares Corp. 5,049 44,381
TCF Financial Corp. 10,984 152,787
Valley National Bancorp 2,142 30,995
Whitney Holding Corp. 531 6,351
-------------
599,873
-------------
COMMERCIAL SERVICES & SUPPLIES 0.6%
Brink's Co. (The) 5,975 169,391
Covanta Holding Corp. (a) 4,685 66,105
R.R. Donnelley & Sons Co. 2,961 34,496
Republic Services, Inc. 1 21
Steelcase, Inc. Class A 3,757 17,019
Stericycle, Inc. (a) 30 1,413
-------------
288,445
-------------
COMMUNICATIONS EQUIPMENT 0.9%
ADC Telecommunications, Inc.
(a) 4,636 34,121
Brocade Communications
Systems, Inc. (a) 17,893 103,421
F5 Networks, Inc. (a) 426 11,617
Harris Corp. 1,212 37,063
JDS Uniphase Corp. (a) 5,183 23,894
Juniper Networks, Inc. (a) 628 13,596
Tellabs, Inc. (a) 50,100 262,524
-------------
486,236
-------------
COMPUTERS & PERIPHERALS 2.3%
Lexmark International, Inc.
Class A (a) 7,628 149,661
NCR Corp. (a) 7,428 75,394
NetApp, Inc. (a) 23,478 429,648
QLogic Corp. (a) 2,143 30,388
Sun Microsystems, Inc. (a) 1,828 16,745
</Table>
+ Percentages indicated are based on Fund net assets.
V Among the Fund's 10 largest holdings, as of April 30, 2009, excluding short-
term investment. May be subject to change daily.
12 MainStay Mid Cap Core Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
COMPUTERS & PERIPHERALS (CONTINUED)
Teradata Corp. (a) 2,670 $ 44,642
V Western Digital Corp. (a) 19,754 464,614
-------------
1,211,092
-------------
CONSTRUCTION & ENGINEERING 1.5%
Fluor Corp. 7,524 284,934
Foster Wheeler A.G. (a) 1,648 35,481
Shaw Group, Inc. (The) (a) 9,497 318,434
URS Corp. (a) 2,994 131,916
-------------
770,765
-------------
CONSUMER FINANCE 0.4%
AmeriCredit Corp. (a) 4,131 42,012
Discover Financial Services 19,931 162,039
-------------
204,051
-------------
CONTAINERS & PACKAGING 0.8%
Ball Corp. 4,918 185,507
Bemis Co., Inc. 3,165 76,086
Packaging Corp. of America 1,710 27,138
Pactiv Corp. (a) 5,174 113,104
Sonoco Products Co. 1,533 37,420
-------------
439,255
-------------
DIVERSIFIED CONSUMER SERVICES 1.8%
Apollo Group, Inc. Class A (a) 6,249 393,375
Brinks Home Security Holdings,
Inc. (a) 5,687 151,160
Career Education Corp. (a) 11,929 262,915
DeVry, Inc. 2,728 116,104
H&R Block, Inc. 37 560
-------------
924,114
-------------
DIVERSIFIED FINANCIAL SERVICES 0.1%
IntercontinentalExchange, Inc.
(a) 794 69,554
-------------
DIVERSIFIED TELECOMMUNICATION SERVICES 0.4%
Embarq Corp. 746 27,274
Qwest Communications
International, Inc. 47,996 186,704
-------------
213,978
-------------
ELECTRIC UTILITIES 0.5%
American Electric Power Co.,
Inc. 706 18,624
DPL, Inc. 3,198 71,731
Northeast Utilities 3,082 64,784
Pinnacle West Capital Corp. 3,661 100,238
PPL Corp. 314 9,392
Progress Energy, Inc. 513 17,504
-------------
282,273
-------------
ELECTRICAL EQUIPMENT 0.9%
Cooper Industries, Ltd. Class
A 11,355 372,330
Hubbel, Inc. Class B 2,401 79,713
Rockwell Automation, Inc. 1,218 38,477
-------------
490,520
-------------
ELECTRONIC EQUIPMENT & INSTRUMENTS 2.6%
Agilent Technologies, Inc. (a) 13,290 242,675
Arrow Electronics, Inc. (a) 9,396 213,665
Avnet, Inc. (a) 14,603 319,660
Ingram Micro, Inc. Class A (a) 22,114 321,095
Jabil Circuit, Inc. 3,633 29,427
Molex, Inc. 4,194 69,914
National Instruments Corp. 54 1,190
Tech Data Corp. (a) 4,200 120,918
Vishay Intertechnology, Inc.
(a) 5,696 33,436
-------------
1,351,980
-------------
ENERGY EQUIPMENT & SERVICES 3.1%
BJ Services Co. 3,110 43,198
V Cameron International Corp.
(a) 17,617 450,643
Diamond Offshore Drilling,
Inc. 5,188 375,663
Dresser-Rand Group, Inc. (a) 6,852 168,765
ENSCO International, Inc. 7,658 216,568
FMC Technologies, Inc. (a) 61 2,088
Noble Corp. 5,132 140,258
Patterson-UTI Energy, Inc. 3,124 39,706
Tidewater, Inc. 3,713 160,587
-------------
1,597,476
-------------
FOOD & STAPLES RETAILING 0.6%
BJ's Wholesale Club, Inc. (a) 2,911 97,053
Safeway, Inc. 5,451 107,657
SUPERVALU, Inc. 3,316 54,216
Whole Foods Market, Inc. 1,397 28,960
-------------
287,886
-------------
FOOD PRODUCTS 1.6%
Bunge, Ltd. 6,578 315,810
Campbell Soup Co. 48 1,235
Dean Foods Co. (a) 9,456 195,739
Del Monte Foods Co. 10,319 77,909
H.J. Heinz Co. 165 5,679
Hershey Co. (The) 5,300 191,542
Hormel Foods Corp. 518 16,208
J.M. Smucker Co. (The) 28 1,103
-------------
805,225
-------------
GAS UTILITIES 0.8%
Atmos Energy Corp. 4,188 103,485
National Fuel Gas Co. 1,391 45,500
UGI Corp. 12,400 284,456
-------------
433,441
-------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
13
PORTFOLIO OF INVESTMENTS APRIL 30, 2009 UNAUDITED (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
HEALTH CARE EQUIPMENT & SUPPLIES 1.8%
C.R. Bard, Inc. 3,100 $ 222,053
Edwards Lifesciences Corp. (a) 1,723 109,204
Hill-Rom Holdings, Inc. 2,222 28,842
Kinetic Concepts, Inc. (a) 8,322 206,053
ResMed, Inc. (a) 5,926 227,855
St. Jude Medical, Inc. (a) 670 22,458
Teleflex, Inc. 2,554 109,771
Varian Medical Systems, Inc.
(a) 85 2,836
-------------
929,072
-------------
HEALTH CARE PROVIDERS & SERVICES 4.2%
AmerisourceBergen Corp. 4,482 150,774
CIGNA Corp. 19,401 382,394
Community Health Systems, Inc.
(a) 1,226 28,002
DaVita, Inc. (a) 2,389 110,778
Health Net, Inc. (a) 1,790 25,848
Henry Schein, Inc. (a) 1,339 54,953
Humana, Inc. (a) 10,371 298,477
Laboratory Corp. of America
Holdings (a) 2,818 180,775
Lincare Holdings, Inc. (a) 10,717 258,601
Omnicare, Inc. 8,811 226,531
V Quest Diagnostics, Inc. 8,610 441,951
-------------
2,159,084
-------------
HEALTH CARE TECHNOLOGY 0.2%
Cerner Corp. (a) 892 47,990
HLTH Corp. (a) 6,479 71,269
-------------
119,259
-------------
HOTELS, RESTAURANTS & LEISURE 2.1%
Chipotle Mexican Grill, Inc.
Class A (a) 1,520 123,257
Choice Hotels International,
Inc. 1,336 39,987
Darden Restaurants, Inc. 9,472 350,180
Panera Bread Co. Class A (a) 3,930 220,119
Penn National Gaming, Inc. (a) 6,941 236,133
Starbucks Corp. (a) 242 3,499
Tim Hortons, Inc. 1,691 41,074
Yum! Brands, Inc. 1,684 56,161
-------------
1,070,410
-------------
HOUSEHOLD DURABLES 4.6%
Black & Decker Corp. 1,896 76,409
Centex Corp. 36,060 394,496
V D.R. Horton, Inc. 34,620 451,791
Garmin, Ltd. 15,055 379,235
Harman International
Industries, Inc. 1,934 35,180
Jarden Corp. (a) 3,132 62,953
KB Home 4,568 82,544
Leggett & Platt, Inc. 17,240 247,566
Lennar Corp. Class A 12,978 126,406
M.D.C. Holdings, Inc. 2,282 77,999
NVR, Inc. (a) 311 157,170
Stanley Works (The) 74 2,814
Toll Brothers, Inc. (a) 13,488 273,267
-------------
2,367,830
-------------
HOUSEHOLD PRODUCTS 1.0%
Church & Dwight Co., Inc. 3,748 203,929
Clorox Co. (The) 5,429 304,295
-------------
508,224
-------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 1.4%
AES Corp. (The) (a) 12,414 87,767
Calpine Corp. (a) 16,003 129,784
Constellation Energy Group,
Inc. 508 12,233
Mirant Corp. (a) 16,747 213,189
NRG Energy, Inc. (a) 15,271 274,573
-------------
717,546
-------------
INDUSTRIAL CONGLOMERATES 0.0%++
Carlisle Cos., Inc. 725 16,494
-------------
INSURANCE 7.5%
Alleghany Corp. (a) 129 32,722
Allied World Assurance
Holdings, Ltd./Bermuda 7,118 264,363
American Financial Group,
Inc. 11,600 203,928
Aon Corp. 6,395 269,869
Arch Capital Group, Ltd. (a) 4,407 254,636
Arthur J. Gallagher & Co. 2,390 53,727
Assurant, Inc. 1,250 30,550
Axis Capital Holdings, Ltd. 12,920 318,349
Brown & Brown, Inc. 12,985 252,688
Cincinnati Financial Corp. 11,440 273,988
CNA Financial Corp. 912 10,917
Endurance Specialty Holdings,
Ltd. 7,383 193,139
First American Corp. 2,733 76,743
Hanover Insurance Group,
Inc.(The) 1,488 44,610
HCC Insurance Holdings, Inc. 12,809 306,391
Marsh & McLennan Cos., Inc. 133 2,805
Old Republic International
Corp. 175 1,640
Principal Financial Group,
Inc. 10,871 177,632
Reinsurance Group of America,
Inc. Class B 30 954
RenaissanceRe Holdings, Ltd. 4,287 208,605
StanCorp Financial Group,
Inc. 4,734 129,854
Torchmark Corp. 7,851 230,270
Unum Group 14,158 231,342
W.R. Berkley Corp. 13,698 327,519
-------------
3,897,241
-------------
</Table>
14 MainStay Mid Cap Core Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
INTERNET & CATALOG RETAIL 0.3%
Expedia, Inc. (a) 1,808 $ 24,607
Priceline.com, Inc. (a) 1,249 121,265
-------------
145,872
-------------
INTERNET SOFTWARE & SERVICES 0.7%
Akamai Technologies, Inc. (a) 1,219 26,842
IAC/InterActiveCorp (a) 13,701 219,490
Sohu.com, Inc. (a) 2,236 116,608
WebMD Health Corp. Class A (a) 157 4,052
-------------
366,992
-------------
IT SERVICES 4.5%
Affiliated Computer Services,
Inc. Class A (a) 4,964 240,158
Alliance Data Systems Corp.
(a) 6,307 264,074
Broadridge Financial Solutions
LLC 12,800 247,680
Computer Sciences Corp. (a) 10,072 372,261
Fidelity National Information
Services, Inc. 4,487 80,093
Fiserv, Inc. (a) 8,283 309,122
Global Payments, Inc. 4,206 134,844
Lender Processing Services,
Inc. 3,106 89,018
Metavante Technologies, Inc.
(a) 3,307 78,012
NeuStar, Inc. Class A (a) 7,420 141,054
SAIC, Inc. (a) 16,455 297,836
Total System Services, Inc. 5,464 68,136
-------------
2,322,288
-------------
LEISURE EQUIPMENT & PRODUCTS 0.5%
Hasbro, Inc. 10,058 268,146
-------------
LIFE SCIENCES TOOLS & SERVICES 0.6%
Life Technologies Corp. (a) 30 1,119
Pharmaceutical Product
Development, Inc. 9,564 187,550
Waters Corp. (a) 2,870 126,768
-------------
315,437
-------------
MACHINERY 4.4%
AGCO Corp. (a) 2,966 72,074
Crane Co. 5,359 123,739
Cummins, Inc. 5,091 173,094
Dover Corp. 10,888 335,133
Flowserve Corp. 646 43,863
Gardner Denver, Inc. (a) 6,033 160,598
Harsco Corp. 4,769 131,386
John Bean Technologies Corp. 3,943 43,452
Joy Global, Inc. 3,753 95,701
Kennametal, Inc. 3,595 73,518
Lincoln Electric Holdings,
Inc. 1,786 79,531
Oshkosh Corp. 8,578 82,349
V Parker Hannifin Corp. 10,154 460,484
SPX Corp. 3,224 148,852
Timken Co. (The) 7,350 118,188
Toro Co. (The) 3,977 120,821
-------------
2,262,783
-------------
MARINE 0.1%
Alexander & Baldwin, Inc. 1,910 50,882
-------------
MEDIA 3.1%
Ascent Media Corp. Class A (a) 438 11,283
CTC Media, Inc. (a) 3,359 26,334
Discovery Communications, Inc.
Class C (a) 14,323 250,939
Dish Network Corp. Class A (a) 17,996 238,447
EW Scripps Co. Class A 901 1,775
Interpublic Group of Cos.,
Inc. (The) (a) 59,868 374,774
V Liberty Media Corp.
Entertainment Class A (a) 17,980 437,813
McGraw-Hill Cos., Inc. (The) 6,581 198,417
Washington Post Co. Class B 152 63,626
-------------
1,603,408
-------------
METALS & MINING 1.0%
Allegheny Technologies, Inc. 6,533 213,825
Carpenter Technology Corp. 1,514 31,294
Cliffs Natural Resources,
Inc. 924 21,308
Reliance Steel & Aluminum Co. 3,461 121,931
Schnitzer Steel Industries,
Inc. Class A 1,250 61,950
Steel Dynamics, Inc. 7,090 88,271
-------------
538,579
-------------
MULTI-UTILITIES 1.9%
Consolidated Edison, Inc. 2,091 77,639
DTE Energy Corp. 82 2,425
NSTAR 9,583 301,002
V PG&E Corp. 12,521 464,779
Sempra Energy 57 2,623
TECO Energy, Inc. 177 1,874
Wisconsin Energy Corp. 2,112 84,396
Xcel Energy, Inc. 3,398 62,659
-------------
997,397
-------------
MULTILINE RETAIL 2.8%
Big Lots, Inc. (a) 7,038 194,530
Dollar Tree, Inc. (a) 8,204 347,357
Family Dollar Stores, Inc. 11,639 386,298
J.C. Penney Co., Inc. 11,398 349,805
Kohl's Corp. (a) 3,625 164,394
Macy's, Inc. 1,563 21,382
-------------
1,463,766
-------------
OIL, GAS & CONSUMABLE FUELS 3.0%
Alpha Natural Resources, Inc.
(a) 960 19,661
Cimarex Energy Co. 8,073 217,164
Encore Acquisition Co. (a) 64 1,868
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
15
PORTFOLIO OF INVESTMENTS APRIL 30, 2009 UNAUDITED (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
OIL, GAS & CONSUMABLE FUELS (CONTINUED)
Frontier Oil Corp. 6,946 $ 88,284
Holly Corp. 773 16,202
V Murphy Oil Corp. 9,519 454,151
Noble Energy, Inc. 3,839 217,863
Southwestern Energy Co. (a) 4,283 153,588
Sunoco, Inc. 4,309 114,232
Tesoro Corp. 16,613 253,348
-------------
1,536,361
-------------
PAPER & FOREST PRODUCTS 0.7%
International Paper Co. 4,720 59,755
MeadWestvaco Corp. 19,294 302,144
-------------
361,899
-------------
PERSONAL PRODUCTS 0.2%
Alberto-Culver Co. 1,031 22,981
Herbalife, Ltd. 4,186 82,967
-------------
105,948
-------------
PHARMACEUTICALS 2.7%
Allergan, Inc. 720 33,595
Endo Pharmaceuticals Holdings,
Inc. (a) 15,728 260,141
Forest Laboratories, Inc. (a) 11,169 242,256
King Pharmaceuticals, Inc. (a) 32,134 253,216
Mylan, Inc. (a) 16,044 212,583
Sepracor, Inc. (a) 2,343 33,294
Warner Chilcott, Ltd. Class A
(a) 1,753 17,162
Watson Pharmaceuticals, Inc.
(a) 11,208 346,775
-------------
1,399,022
-------------
PROFESSIONAL SERVICES 1.6%
Dun & Bradstreet Corp. 18 1,465
Manpower, Inc. 9,457 407,502
Monster Worldwide, Inc. (a) 11,835 163,323
Robert Half International,
Inc. 11,687 280,722
-------------
853,012
-------------
REAL ESTATE INVESTMENT TRUSTS 2.2%
Annaly Capital Management,
Inc. 14,159 199,217
Camden Property Trust 544 14,759
Health Care REIT, Inc. 41 1,397
Hospitality Properties Trust 9,441 115,558
Host Hotels & Resorts, Inc. 44,226 340,098
HRPT Properties Trust 7,117 30,674
iStar Financial, Inc. 2,623 8,840
Mack-Cali Realty Corp. 413 11,093
Plum Creek Timber Co., Inc. 50 1,726
Public Storage 6,063 405,372
Taubman Centers, Inc. 809 19,270
Walter Investment Management
Corp. (a) 486 3,888
-------------
1,151,892
-------------
ROAD & RAIL 0.1%
Ryder System, Inc. 2,723 75,400
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 3.8%
Altera Corp. 5,297 86,394
Analog Devices, Inc. 63 1,341
Atmel Corp. (a) 950 3,648
V Broadcom Corp. Class A (a) 21,133 490,074
Cree, Inc. (a) 1,432 39,222
Cypress Semiconductor Corp.
(a) 14,556 115,429
Integrated Device Technology,
Inc. (a) 24,516 133,122
Intersil Corp. Class A 2,899 33,628
KLA-Tencor Corp. 116 3,218
Lam Research Corp. (a) 108 3,011
LSI Corp. (a) 615 2,362
Marvell Technology Group, Ltd.
(a) 37,326 409,839
MEMC Electronic Materials,
Inc. (a) 2,648 42,898
National Semiconductor Corp. 10,587 130,961
Novellus Systems, Inc. (a) 8,480 153,149
ON Semiconductor Corp. (a) 190 1,030
Silicon Laboratories, Inc. (a) 5,672 188,651
Teradyne, Inc. (a) 5,989 35,575
Varian Semiconductor Equipment
Associates, Inc. (a) 2,238 57,270
Xilinx, Inc. 2,129 43,517
-------------
1,974,339
-------------
SOFTWARE 4.5%
Amdocs, Ltd. (a) 8,636 180,752
Autodesk, Inc. (a) 17,166 342,290
BMC Software, Inc. (a) 10,728 371,940
CA, Inc. 6,981 120,422
Cadence Design Systems, Inc.
(a) 1,295 7,226
Citrix Systems, Inc. (a) 3,845 109,698
Compuware Corp. (a) 24,919 186,394
Intuit, Inc. (a) 10,710 247,722
McAfee, Inc. (a) 5,830 218,858
Novell, Inc. (a) 27,284 102,588
Red Hat, Inc. (a) 4,358 75,263
Synopsys, Inc. (a) 15,767 343,405
-------------
2,306,558
-------------
SPECIALTY RETAIL 6.0%
Abercrombie & Fitch Co. Class
A 1,484 40,157
Advance Auto Parts, Inc. 5,340 233,625
American Eagle Outfitters,
Inc. 101 1,497
AutoNation, Inc. (a) 12,747 225,749
AutoZone, Inc. (a) 2,412 401,333
Barnes & Noble, Inc. 5,322 139,011
Dick's Sporting Goods, Inc.
(a) 1,214 23,066
Foot Locker, Inc. 20,067 238,597
Gap, Inc. (The) 22,288 346,355
</Table>
16 MainStay Mid Cap Core Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
SPECIALTY RETAIL (CONTINUED)
Guess?, Inc. 1,007 $ 26,222
Limited Brands, Inc. 30,745 351,108
PetSmart, Inc. 5,294 121,127
RadioShack Corp. 15,568 219,197
Ross Stores, Inc. 6,468 245,396
Sherwin-Williams Co. (The) 7,066 400,218
TJX Cos., Inc. 104 2,909
Williams-Sonoma, Inc. 7,422 103,908
-------------
3,119,475
-------------
TEXTILES, APPAREL & LUXURY GOODS 1.1%
Coach, Inc. (a) 132 3,234
Phillips-Van Heusen Corp. 5,894 171,103
Polo Ralph Lauren Corp. 7,133 384,041
-------------
558,378
-------------
THRIFTS & MORTGAGE FINANCE 0.2%
Peoples United Financial 8,146 127,241
-------------
TOBACCO 0.1%
Lorillard, Inc. 582 36,742
-------------
TRADING COMPANIES & DISTRIBUTORS 0.4%
MSC Industrial Direct Co. 2,111 86,234
WESCO International, Inc. (a) 4,118 107,068
-------------
193,302
-------------
WATER UTILITIES 0.5%
American Water Works Co.,
Inc. 4,017 72,306
Aqua America, Inc. 8,879 162,930
-------------
235,236
-------------
WIRELESS TELECOMMUNICATION SERVICES 0.3%
American Tower Corp. Class A
(a) 621 19,723
NII Holdings, Inc. (a) 5,184 83,774
Telephone and Data Systems,
Inc. 1,836 52,638
United States Cellular Corp.
(a) 294 9,996
-------------
166,131
-------------
Total Common Stocks
(Cost $50,866,690) 51,047,975
-------------
EXCHANGE TRADED FUND 1.2% (B)
- ------------------------------------------------------------
V S&P MidCap 400
Index--MidCap SPDR Trust
Series 1 6,208 631,602
-------------
Total Exchange Traded Fund
(Cost $598,077) 631,602
-------------
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENT 0.3%
- ------------------------------------------------------------
REPURCHASE AGREEMENT 0.3%
State Street Bank and Trust
Co.
0.05%, dated 4/30/09
due 5/1/09
Proceeds at Maturity
$139,502
(Collateralized by a United
States
Treasury Bill with a rate of
0.12% and a maturity date of
7/30/09,
with a Principal Amount of
$145,000 and a
Market Value of $144,957) $139,502 $ 139,502
-------------
Total Short-Term Investment
(Cost $139,502) 139,502
-------------
Total Investments
(Cost $51,604,269) (c) 100.1% 51,819,079
Liabilities in Excess of
Cash and Other Assets (0.1) (72,409)
----- ------------
Net Assets 100.0% $ 51,746,670
===== ============
</Table>
<Table>
++ Less than one-tenth of a percent.
(a) Non-income producing security.
(b) Exchange Traded Fund--represents a basket
of securities that are traded on an
exchange.
(c) At April 30, 2009, cost is $52,906,539
for federal income tax purposes and net
unrealized depreciation is as follows:
</Table>
<Table>
Gross unrealized appreciation $ 4,130,179
Gross unrealized depreciation (5,217,639)
-----------
Net unrealized depreciation $(1,087,460)
===========
</Table>
The following is a summary of the inputs used as of April 30, 2009 in valuing
the Fund's assets carried at fair value:
<Table>
<Caption>
INVESTMENTS IN
VALUATION INPUTS SECURITIES
Level 1--Quoted Prices $51,679,577
Level 2--Other Significant
Observable Inputs 139,502
Level 3--Significant Unobservable
Inputs --
-----------
Total $51,819,079
===========
</Table>
The Fund did not hold other financial instruments as of April 30, 2009.
At April 30, 2009, the Fund did not hold any investments with significant
unobservable inputs (Level 3).
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
17
STATEMENT OF ASSETS AND LIABILITIES AS OF APRIL 30, 2009 UNAUDITED
<Table>
ASSETS:
Investment in securities, at value
(identified cost $51,604,269) $ 51,819,079
Receivables:
Investment securities sold 56,207
Dividends and interest 42,360
Fund shares sold 21,780
Other assets 41,835
------------
Total assets 51,981,261
------------
LIABILITIES:
Payables:
Transfer agent (See Note 3) 113,196
Fund shares redeemed 57,040
Professional fees 21,263
NYLIFE Distributors (See Note 3) 18,269
Shareholder communication 10,381
Custodian 5,923
Manager (See Note 3) 3,782
Investment securities purchased 3,348
Trustees 554
Accrued expenses 835
------------
Total liabilities 234,591
------------
Net assets $ 51,746,670
============
COMPOSITION OF NET ASSETS:
Share of beneficial interest
outstanding
(par value of $.01 per share)1
billion shares authorized $ 35,056
Additional paid-in capital 91,327,879
------------
91,362,935
Accumulated distributions in excess
of net investment income (8,761)
Accumulated net realized loss on
investments (39,822,314)
Net unrealized appreciation on
investments 214,810
------------
Net assets $ 51,746,670
============
INVESTOR CLASS
Net assets applicable to
outstanding shares $ 10,624,736
============
Shares of beneficial interest
outstanding 714,780
============
Net asset value per share
outstanding $ 14.86
Maximum sales charge (5.50% of
offering price) 0.86
------------
Maximum offering price per share
outstanding $ 15.72
============
CLASS A
Net assets applicable to
outstanding shares $ 13,100,749
============
Shares of beneficial interest
outstanding 883,065
============
Net asset value per share
outstanding $ 14.84
Maximum sales charge (5.50% of
offering price) 0.86
------------
Maximum offering price per share
outstanding $ 15.70
============
CLASS B
Net assets applicable to
outstanding shares $ 8,564,364
============
Shares of beneficial interest
outstanding 591,433
============
Net asset value and offering price
per share outstanding $ 14.48
============
CLASS C
Net assets applicable to
outstanding shares $ 8,294,366
============
Shares of beneficial interest
outstanding 573,462
============
Net asset value and offering price
per share outstanding $ 14.46
============
CLASS I
Net assets applicable to
outstanding shares $ 11,092,873
============
Shares of beneficial interest
outstanding 738,238
============
Net asset value and offering price
per share outstanding $ 15.03
============
CLASS R3
Net assets applicable to
outstanding shares $ 69,582
============
Shares of beneficial interest
outstanding 4,663
============
Net asset value and offering price
per share outstanding $ 14.92
============
</Table>
18 MainStay Mid Cap Core Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 2009 UNAUDITED
<Table>
INVESTMENT INCOME:
INCOME:
Dividends $ 473,329
------------
EXPENSES:
Manager (See Note 3) 217,843
Transfer agent--Investor Class
(See Note 3) 33,988
Transfer agent--Class A (See Note
3) 60,386
Transfer agent--Class B and C
(See Note 3) 60,745
Transfer agent--Classes I and R3
(See Note 3) 32,115
Distribution--Class B (See Note
3) 30,430
Distribution--Class C (See Note
3) 30,931
Distribution--Class R3 (See Note
3) 74
Distribution/Service--Investor
Class (See Note 3) 11,462
Distribution/Service--Class A
(See Note 3) 21,000
Service--Class B (See Note 3) 10,143
Service--Class C (See Note 3) 10,310
Distribution/Service--Class R3
(See Note 3) 74
Registration 41,385
Shareholder communication 27,815
Professional fees 22,797
Custodian 7,414
Trustees 1,600
Shareholder service--Class R3
(See Note 3) 30
Miscellaneous 5,200
------------
Total expenses before
waiver/reimbursement 625,742
Expense waiver/reimbursement from
Manager (See Note 3) (219,281)
------------
Net expenses 406,461
------------
Net investment income 66,868
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on investments (18,057,161)
Net change in unrealized
depreciation on investments 16,250,452
------------
Net realized and unrealized loss on
investments (1,806,709)
------------
Net decrease in net assets
resulting from operations $ (1,739,841)
============
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
19
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 2009 UNAUDITED AND THE YEAR ENDED OCTOBER 31,
2008
<Table>
<Caption>
2009 2008
DECREASE IN NET ASSETS:
Operations:
Net investment income $ 66,868 $ 870,904
Net realized loss on
investments and futures
transactions (18,057,161) (21,763,477)
Net change in unrealized
appreciation (depreciation)
on investments and futures
contracts 16,250,452 (22,510,772)
---------------------------
Net decrease in net assets
resulting from operations (1,739,841) (43,403,345)
---------------------------
Dividends and distributions
to shareholders:
From net investment income:
Investor Class (137,754) --
Class A (326,681) (577,459)
Class B (40,625) (6,705)
Class C (44,717) (14,000)
Class I (143,361) (225,102)
Class R3 (596) (446)
---------------------------
(693,734) (823,712)
---------------------------
From net realized gain on investments:
Class A -- (8,414,430)
Class B -- (2,653,403)
Class C -- (3,030,218)
Class I -- (2,363,902)
Class R3 -- (10,211)
---------------------------
-- (16,472,164)
---------------------------
Total dividends and
distributions to
shareholders (693,734) (17,295,876)
---------------------------
Capital share transactions:
Net proceeds from sale of
shares 6,566,699 17,666,364
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions 589,504 14,612,797
Cost of shares redeemed (12,772,100) (47,063,628)
---------------------------
Decrease in net assets
derived from capital
share transactions (5,615,897) (14,784,467)
---------------------------
Net decrease in net
assets (8,049,472) (75,483,688)
NET ASSETS:
Beginning of period 59,796,142 135,279,830
---------------------------
End of period $ 51,746,670 $ 59,796,142
===========================
Accumulated undistributed
(distributions in excess
of) net investment income
at end of period $ (8,761) $ 618,105
===========================
</Table>
20 MainStay Mid Cap Core Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
This page intentionally left blank
mainstayinvestments.com 21
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
INVESTOR CLASS
-------------------------
FEBRUARY 28,
SIX MONTHS 2008**
ENDED THROUGH
APRIL 30, OCTOBER 31,
-------------------------
2009* 2008
Net asset value at
beginning of period $ 15.26 $ 22.46
------- -------
Net investment income
(loss) 0.03 (a) 0.15 (a)
Net realized and
unrealized gain
(loss) on investments (0.23) (7.35)
------- -------
Total from investment
operations (0.20) (7.20)
------- -------
Less dividends and
distributions:
From net investment
income (0.20) --
From net realized
gain on
investments -- --
------- -------
Total dividends and
distributions (0.20) --
------- -------
Net asset value at end
of period $ 14.86 $ 15.26
======= =======
Total investment return
(b) (1.13%)(c) (32.06%)(c)
Ratios (to average net
assets)/Supplemental
Data:
Net investment income
(loss) 0.38% ++ 1.03% ++
Net expenses 1.45% ++ 1.45% ++
Expenses (before
waiver/reimburse-
ment) 2.26% ++ 2.03% ++
Portfolio turnover rate 88% 203%
Net assets at end of
period (in 000's) $10,625 $10,230
</Table>
<Table>
<Caption>
CLASS B
------------------------------------------------------------------------
JANUARY 2,
SIX MONTHS 2004**
ENDED THROUGH
APRIL 30, YEAR ENDED OCTOBER 31, OCTOBER 31,
------------------------------------------------------------------------
2009* 2008 2007 2006 2005 2004
Net asset value at
beginning of period $14.77 $ 28.10 $ 27.23 $ 25.60 $ 23.14 $21.79
------ ------- ------- ------- ------- ------
Net investment income
(loss) (0.02)(a) 0.06 (a) 0.04 (a) (0.08) (0.10) (0.07)
Net realized and
unrealized gain (loss)
on investments (0.20) (9.80) 1.77 3.06 3.28 1.42
------ ------- ------- ------- ------- ------
Total from investment
operations: (0.22) (9.74) 1.81 2.98 3.18 1.35
------ ------- ------- ------- ------- ------
Less dividends and
distributions:
From net investment
income (0.07) (0.01) -- -- (0.01) --
From net realized gain
on investments -- (3.58) (0.94) (1.35) (0.71) --
------ ------- ------- ------- ------- ------
Total dividends and
distributions (0.07) (3.59) (0.94) (1.35) (0.72) --
------ ------- ------- ------- ------- ------
Net asset value at end of
period $14.48 $ 14.77 $ 28.10 $ 27.23 $ 25.60 $23.14
====== ======= ======= ======= ======= ======
Total investment return
(b) (1.47%)(c) (39.54%) 6.76% 12.09% 13.81% 6.20% (c)
Ratios (to average net
assets)/Supplemental
Data:
Net investment income
(loss) (0.36%)++ 0.30% 0.15% (0.18%) (0.43%) (0.96%)++
Net expenses 2.20% ++ 2.15% 2.10% 2.10% 2.25% 2.28% ++#
Expenses (before
waiver/reimbursement) 3.01% ++ 2.69% 2.40% 2.43% 2.53% 2.88% ++#
Portfolio turnover rate 88% 203% 150% 94% 153% 43%
Net assets at end of
period (in 000's) $8,564 $ 9,610 $21,376 $21,047 $25,068 $5,756
</Table>
<Table>
* Unaudited.
** Commencement of operations.
++ Annualized.
# Includes transfer agent fees paid indirectly which amounted to 0.02% of
average net assets for the years or periods ended October 31, 2004.
(a) Per share data based on average shares outstanding during the period.
(b) Total return is calculated exclusive of sales charges and assumes the
reinvestment of dividends and distributions. Class I and Class R3 shares are
not subject to sales charges.
(c) Total return is not annualized.
</Table>
22 MainStay Mid Cap Core Fund
22 MainStay Mid Cap Core Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------------------------
JANUARY 2,
SIX MONTHS 2004**
ENDED THROUGH
APRIL 30, YEAR ENDED OCTOBER 31, OCTOBER 31,
--------------------------------------------------------------------------------------
2009* 2008 2007 2006 2005 2004
$ 15.27 $ 28.93 $ 27.91 $ 26.10 $ 23.45 $21.93
------- ------- ------- ------- ------- ------
0.03 (a) 0.25 (a) 0.26 (a) 0.12 0.06 (0.01)
(0.22) (10.11) 1.81 3.12 3.34 1.53
------- ------- ------- ------- ------- ------
(0.19) (9.86) 2.07 3.24 3.40 1.52
------- ------- ------- ------- ------- ------
(0.24) (0.22) (0.11) (0.08) (0.04) --
-- (3.58) (0.94) (1.35) (0.71) --
------- ------- ------- ------- ------- ------
(0.24) (3.80) (1.05) (1.43) (0.75) --
------- ------- ------- ------- ------- ------
$ 14.84 $ 15.27 $ 28.93 $ 27.91 $ 26.10 $23.45
======= ======= ======= ======= ======= ======
(1.06%)(c) (39.03%) 7.56% 12.89% 14.59% 6.93% (c)
0.52% ++ 1.10% 0.89% 0.47% 0.32% (0.21%)++
1.35% ++ 1.35% 1.35% 1.35% 1.50% 1.53% ++#
2.23% ++ 1.83% 1.65% 1.68% 1.78% 2.13% ++#
88% 203% 150% 94% 153% 43%
$13,101 $20,801 $69,082 $64,829 $42,239 $6,554
</Table>
<Table>
<Caption>
CLASS C
------------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------------------
2009* 2008 2007 2006 2005 2004
$14.76 $ 28.09 $ 27.21 $ 25.59 $ 23.14 $20.86
------ ------- ------- ------- ------- ------
(0.02)(a) 0.06 (a) 0.04 (a) (0.05) (0.08) (0.07)
(0.21) (9.80) 1.78 3.02 3.25 2.50
------ ------- ------- ------- ------- ------
(0.23) (9.74) 1.82 2.97 3.17 2.43
------ ------- ------- ------- ------- ------
(0.07) (0.01) -- -- (0.01) --
-- (3.58) (0.94) (1.35) (0.71) (0.15)
------ ------- ------- ------- ------- ------
(0.07) (3.59) (0.94) (1.35) (0.72) (0.15)
------ ------- ------- ------- ------- ------
$14.46 $ 14.76 $ 28.09 $ 27.21 $ 25.59 $23.14
====== ======= ======= ======= ======= ======
(1.53%)(c) (39.52%) 6.72% 12.09% 13.76% 11.71%
(0.35%)++ 0.29% 0.15% (0.26%) (0.43%) (0.96%)
2.20% ++ 2.15% 2.10% 2.10% 2.25% 2.28% #
3.01% ++ 2.69% 2.39% 2.43% 2.53% 2.88% #
88% 203% 150% 94% 153% 43%
$8,294 $10,170 $24,485 $31,445 $22,687 $4,951
</Table>
mainstayinvestments.com 23
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
23
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS I
------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2009* 2008 2007 2006 2005 2004
Net asset value at
beginning of period $ 15.47 $ 29.28 $ 28.18 $ 26.34 $ 23.57 $ 21.01
------- ------- ------- ------- ------- -------
Net investment income 0.05 (a) 0.32 (a) 0.35 (a) 0.24 0.12 0.05
Net realized and
unrealized gain (loss)
on investments (0.22) (10.25) 1.83 3.11 3.42 2.66
------- ------- ------- ------- ------- -------
Total from investment
operations (0.17) (9.93) 2.18 3.35 3.54 2.71
------- ------- ------- ------- ------- -------
Less dividends and
distributions:
From net investment
income (0.27) (0.30) (0.14) (0.16) (0.06) --
From net realized gain
on investments -- (3.58) (0.94) (1.35) (0.71) (0.15)
------- ------- ------- ------- ------- -------
Total dividends and
distributions (0.27) (3.88) (1.08) (1.51) (0.77) (0.15)
------- ------- ------- ------- ------- -------
Net asset value at end of
period $ 15.03 $ 15.47 $ 29.28 $ 28.18 $ 26.34 $ 23.57
======= ======= ======= ======= ======= =======
Total investment return
(b) (0.88%)(c)(38.86%) 7.87% 13.24% 15.11% 12.97%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income 0.77% ++ 1.41% 1.20% 0.81% 0.78% 0.26%
Net expenses 1.04% ++ 1.04% 1.04% 1.04% 1.04% 1.06%#
Expenses (before
waiver/reimbursement) 1.98% ++ 1.41% 1.17% 1.16% 1.27% 1.66%#
Portfolio turnover rate 88% 203% 150% 94% 153% 43%
Net assets at end of
period (in 000's) $11,093 $ 8,926 $20,256 $24,309 $23,379 $18,508
</Table>
<Table>
<Caption>
CLASS R3
----------------------------------------------
APRIL 28,
SIX MONTHS 2006**
ENDED YEAR ENDED THROUGH
APRIL 30, OCTOBER 31, OCTOBER 31,
----------------------------------------------
2009* 2008 2007 2006
Net asset value at
beginning of period $15.26 $ 28.91 $27.87 $27.81
------ ------- ------ ------
Net investment income
(loss) 0.01 (a) 0.18 (a) 0.15 (a) (0.00)++
Net realized and
unrealized gain (loss)
on investments (0.21) (10.11) 1.84 0.06
------ ------- ------ ------
Total from investment
operations: (0.20) (9.93) 1.99 0.06
------ ------- ------ ------
Less dividends and
distributions:
From net investment
income (0.14) (0.14) (0.01) --
From net realized gain
on investments -- (3.58) (0.94) --
------ ------- ------ ------
Total dividends and
distributions (0.14) (3.72) (0.95) --
------ ------- ------ ------
Net asset value at end of
period $14.92 $ 15.26 $28.91 $27.87
====== ======= ====== ======
Total investment return
(b) (1.23%)(c) (39.20%) 7.24% 0.22% (c)
Ratios (to average net
assets)/Supplemental
Data:
Net investment income
(loss) 0.19% ++ 0.83% 0.50% (0.02%)++
Net expenses 1.64% ++ (1.64%) 1.64% 1.64% ++
Expenses (before
waiver/reimbursement) 2.58% ++ (2.03%) 1.77% 1.77% ++
Portfolio turnover rate 88% 203% 150% 94%
Net assets at end of
period (in 000's) $ 70 $ 59 $ 80 $ 10
</Table>
<Table>
* Unaudited.
** Commencement of operations.
++ Annualized.
++ Less than one cent per share.
# Includes transfer agent fees paid indirectly which amounted to 0.02% of
average net assets for the years or periods ended October 31, 2004.
(a) Per share data based on average shares outstanding during the period.
(b) Total return is calculated exclusive of sales charges and assumes the
reinvestment of dividends and distributions. Class I and Class R3 shares are
not subject to sales charges.
(c) Total return is not annualized.
</Table>
24 MainStay Mid Cap Core Fund
24 MainStay Mid Cap Core Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
NOTES TO FINANCIAL STATEMENTS UNAUDITED
NOTE 1--ORGANIZATION AND BUSINESS:
Eclipse Funds (the "Trust") was organized on July 30, 1986, as a Massachusetts
business trust. The Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company,
and is comprised of three funds (collectively referred to as the "Funds"). These
financial statements and notes relate only to the MainStay Mid Cap Core Fund
(the "Fund"), a diversified fund. Effective September 29, 2008, the Fund changed
its name from MainStay Mid Cap Opportunity Fund. Also effective September 29,
2008, the Fund changed its principal investment strategy, investment process and
principal risks.
The Fund currently offers six classes of shares. Class I shares commenced
operations on December 27, 1994. Class C shares commenced operations on December
30, 2002. Class A shares and Class B shares commenced operations on January 2,
2004. Class R3 shares commenced operations on April 28, 2006. Investor Class
shares commenced operations on February 28, 2008. Investor Class and Class A
shares are offered at net asset value ("NAV") per share plus an initial sales
charge. No sales charge applies on investments of $1 million or more (and
certain other qualified purchases) in Investor Class and Class A shares, but a
contingent deferred sales charge is imposed on certain redemptions of such
shares within one year of the date of purchase. Class B shares and Class C
shares are offered without an initial sales charge, although a declining
contingent deferred sales charge may be imposed on redemptions made within six
years of purchase of Class B shares and a 1.00% contingent deferred sales charge
may be imposed on redemptions made within one year of purchase of Class C
shares. Class I and Class R3 shares are not subject to a sales charge. Depending
upon eligibility, Class B shares convert to either Investor Class or Class A
shares eight years after the date they were purchased. Additionally, depending
upon eligibility, Investor Class shares may convert to Class A shares and Class
A shares may convert to Investor Class shares. The six classes of shares have
the same voting (except for issues that relate solely to one class), dividend,
liquidation and other rights, and bear the same conditions except that Class B
and Class C shares are subject to higher distribution and service fee rates than
Investor Class, Class A and Class R3 shares under a distribution plan pursuant
to Rule 12b-1 under the 1940 Act. Class I and Class R3 shares are not subject to
a distribution or service fee. Class R3 shares are authorized to pay a
shareholder service fee to the Manager, as defined in Note 3(A), its affiliates,
or third-party service providers, as compensation for services rendered to
shareholders of Class R3 shares.
The Fund's investment objective is to seek long-term growth of capital.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The Fund prepares its financial statements in accordance with accounting
principles generally accepted in the United States of America and follows the
significant accounting policies described below.
(A) SECURITIES VALUATION. Equity securities are valued at the latest quoted
sales prices as of the close of trading on the New York Stock Exchange
(generally 4:00 p.m. Eastern time) on each day the Fund is open for business
("valuation date"). Securities that are not traded on the valuation date are
valued at the mean of the latest quoted bid and asked prices. Prices normally
are taken from the principal market in which each security trades. Futures
contracts are valued at the last posted settlement price on the market where
such futures are primarily traded. Investments in other mutual funds are valued
at their NAVs as of the close of the New York Stock Exchange on the date of
valuation.
Temporary cash investments acquired over 60 days prior to maturity are valued
using the latest bid prices or using valuations based on a matrix system (which
considers such factors as security prices, yields, maturities, and ratings),
both as furnished by independent pricing services. Other temporary cash
investments which mature in 60 days or less are valued at amortized cost. The
amortized cost method involves valuing a security at its cost on the date of
purchase and thereafter assuming a constant amortization to maturity of the
difference between the principal amount due at maturity and cost.
Securities for which market quotations are not readily available are valued by
methods deemed in good faith by the Fund's Board of Trustees to represent fair
value. Equity and non-equity securities which may be valued in this manner
include, but are not limited to: (i) a security the trading for which has been
halted or suspended; (ii) a debt security that has recently gone into default
and for which there is not a current market quotation; (iii) a security of an
issuer that has entered into a restructuring; (iv) a security that has been de-
listed from a national exchange; (v) a security the market price of which is not
available from an independent pricing source or, if so provided, does not, in
the opinion of the Fund's Manager or Subadvisor, as defined in Note 3(A),
reflect the security's market value; and (vi) a security where the trading on
that security's principal market is temporarily closed at a time when, under
normal conditions, it would be open. At April 30, 2009, the Fund did not hold
securities that were valued in such a manner.
The Fund adopted Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"),
effective for the fiscal year beginning November 1, 2008. In accordance with
SFAS 157, fair value is defined as the price that the Fund would receive upon
selling an investment in an
mainstayinvestments.com 25
NOTES TO FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
orderly transaction to an independent buyer in the principal or most
advantageous market of the investment. SFAS 157 established a three-tier
hierarchy which maximizes the use of observable market data and minimizes the
use of unobservable inputs to establish classification of fair value
measurements for disclosure purposes. Inputs refer broadly to the assumptions
that market participants would use in pricing the asset or liability, including
assumptions about risk, such as, the risk inherent in a particular valuation
technique used to measure fair value, including such a pricing model and/or the
risk inherent in the inputs to the valuation technique. Inputs may be observable
or unobservable. Observable inputs are inputs that reflect the assumptions
market participants would use in pricing the asset or liability developed based
on market data obtained from sources independent of the reporting entity.
Unobservable inputs are inputs that reflect the reporting entity's own
assumptions about the assumptions market participants would use in pricing the
asset or liability developed based on the information available in the
circumstances. The inputs or methodology used for valuing securities may not be
an indication of the risks associated with investing in those securities. The
three-tier hierarchy of inputs is summarized in the three broad Levels listed
below.
- - Level 1--quoted prices in active markets for identical investments
- - Level 2--other significant observable inputs (including quoted prices for
similar investments in active markets, interest rates and yield curves,
prepayment speeds, credit risks, etc.)
- - Level 3--significant unobservable inputs (including the Fund's own assumptions
about the assumptions that market participants would use in determining the
fair value of investments)
The aggregate value by input level, as of April 30, 2009, for the Fund's
investments is included at the end of the Fund's Portfolio of Investments.
The valuation techniques used by the Fund to measure fair value during the six-
month period ended April 30, 2009, maximized the use of observable inputs and
minimized the use of unobservable inputs. The Fund utilized the following fair
value techniques: multi-dimensional relational pricing models, option adjusted
spread pricing and estimating the price that would have prevailed in a liquid
market for an international equity security given information available at the
time of evaluation, when there are significant events after the close of local
foreign markets.
In April 2009, FASB issued FASB Staff Position No. 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" ("FSP
157-4"). FSP 157-4 provides additional guidance for estimating fair value in
accordance with FASB SFAS 157, when the volume and level of activity for the
asset or liability have significantly decreased as well as guidance on
identifying circumstances that indicate a transaction is not orderly. FSP 157-4
is effective for fiscal years and interim periods ending after June 15, 2009.
Management is currently evaluating the impact the adoption of FSP 157-4 will
have on the Fund's financial statement disclosures.
(B) FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute all of the taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no federal income tax provision is required.
In July 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes," ("FIN 48")
an interpretation of FASB Statement No. 109 (the "Interpretation"). The
Interpretation established for all entities, including pass-through entities
such as the Fund, a minimum threshold for financial statement recognition of the
benefit of positions taken in filing tax returns (including whether an entity is
taxable in a particular jurisdiction), and requires certain expanded tax
disclosures. The Fund has not recorded any tax liabilities pursuant to FIN 48.
Each of the Fund's tax returns for the prior three years remains subject to
examination by the Internal Revenue Service and state tax authorities. The
Manager, as defined in Note 3(A), determined that the adoption of the
Interpretation did not have an impact on the Fund's financial statements upon
adoption. The Manager continually reviews the Fund's tax positions and such
conclusions under the Interpretation based on factors, including, but not
limited to, ongoing analyses of tax laws and regulations and interpretations
thereof.
(C) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions
are recorded on the ex-dividend date. The Fund intends to declare and pay
dividends of net investment income and distributions of net realized capital and
currency gains, if any, annually. All dividends and distributions are reinvested
in shares of the Fund, at NAV, unless the shareholder elects otherwise.
Dividends and distributions to shareholders are determined in accordance with
federal income tax regulations and may differ from generally accepted accounting
principles in the United States of America.
(D) SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued as earned
using the effective interest rate method. Discounts and premiums on short-term
securities are accreted and amortized, respectively, on the straight-line
method.
26 Mainstay Mid Cap Core Fund
Investment income and realized and unrealized gains and losses on investments of
the Fund are allocated to separate classes of shares pro rata based upon their
relative net assets on the date the income is earned or realized and unrealized
gains and losses are incurred.
(E) EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred, except where direct allocations of expenses can be made. Expenses
(other than transfer agent expenses and fees incurred under the shareholder
services plans and the distribution plans further discussed in Note 3(B)) are
allocated to separate classes of shares pro rata based upon their relative net
asset value on the date the expenses are incurred. The expenses borne by the
Fund, including those of related parties to the Fund, are shown in the Statement
of Operations.
(F) USE OF ESTIMATES. In preparing financial statements in conformity with
accounting principles generally accepted in the United States of America,
management makes estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
(G) REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements to
earn income. The Fund may enter into repurchase agreements only with financial
institutions that are deemed by the Manager or Subadvisor, if any, to be
creditworthy, pursuant to guidelines established by the Fund's Board of
Trustees. Repurchase agreements are considered under the Investment Company Act
to be collateralized loans by a Fund to the seller secured by the securities
transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund's custodian takes
possession of the collateral pledged for investments in such repurchase
agreements. The underlying collateral is valued daily on a mark-to-market basis
to determine that the value, including accrued interest, exceeds the repurchase
price. In the event of the seller's default of the obligation to repurchase, the
Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
(H) FUTURES CONTRACTS. A futures contract is an agreement to purchase or sell a
specified quantity of an underlying instrument at a specified future date and
price, or to make or receive a cash payment based on the value of a securities
index. During the period the futures contract is open, changes in the value of
the contract are recognized as unrealized gains or losses by "marking-to-market"
such contract on a daily basis to reflect the market value of the contract at
the end of each day's trading. The Fund agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments are known as "variation margin." When the
futures contract is closed, the Fund records a realized gain or loss equal to
the difference between the proceeds from (or cost of) the closing transaction
and the Fund's basis in the contract. The Fund invests in stock index futures
contracts to gain full exposure to changes in stock market prices to fulfill its
investment objectives. The Fund's investment in futures contracts and other
derivatives may increase the volatility of the Fund's net asset value and may
result in a loss to the Fund.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the Statement of Assets and
Liabilities. The contract or notional amounts and variation margin reflect the
extent of the Fund's involvement in open futures positions. Risks arise from the
possible imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets, and the possible inability of
counterparties to meet the terms of their contracts. However, the Fund's
activities in futures contracts are conducted through regulated exchanges which
minimize counterparty credit risks.
(I) SECURITIES LENDING. In order to realize additional income, the Fund may
engage in securities lending, subject to the limitations set forth in the
Investment Company Act of 1940. In the event the Fund does engage in securities
lending, the Fund will lend through its custodian, State Street Bank and Trust
Company ("State Street"). State Street manages the Fund's cash collateral in
accordance with the Lending Agreement between the Fund and State Street, and
indemnifies the Fund's portfolio against counterparty risk. The loans are
collateralized by cash or securities at least equal at all times to the market
value of the securities loaned. Collateral will consist of U.S. Government
securities, cash equivalents or irrevocable letters of credit. The Fund may bear
the risk of delay in recovery of, or loss of rights in, the securities loaned
should the borrower of the securities experience financial difficulty. The Fund
may also record realized gain or loss on securities deemed sold due to
borrower's inability to return securities on loan. The Fund receives
compensation for lending its securities in the form of fees or it retains a
portion of interest on the investment of any cash received as collateral. The
Fund also continues to receive interest and dividends on the securities loaned
and any gain or loss in the market price of the securities loaned that may occur
during the term of the loan will be for the account of the Fund.
In light of current market conditions, the Fund's Board of Trustees and New York
Life Investments, as defined in Note 3(A), have determined that it is in the
best interest of the Fund to temporarily stop lending portfolio securities, and
to recall all outstanding loans. As a result, on
mainstayinvestments.com 27
NOTES TO FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
September 18, 2008, the Fund temporarily suspended its participation in the
securities lending program and initiated a recall of all securities out on loan.
All loaned securities have since been recalled. The Fund and New York Life
Investments reserve the right to reinstitute lending when deemed appropriate.
(J) INDEMNIFICATIONS. Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities that may arise out of
performance of their duties to the Trust. Additionally, in the normal course of
business, the Fund enters into contracts with third-party service providers that
contain a variety of representations and warranties and which provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the Fund
that have not yet occurred. Based on experience, management is of the view that
the risk of loss in connection with these potential indemnification obligations
is remote. However, there can be no assurance that material liabilities related
to such obligations will not arise in the future, which could adversely impact
the Fund.
NOTE 3--FEES AND RELATED PARTY TRANSACTIONS:
(A) MANAGER AND SUBADVISOR. New York Life Investment Management LLC ("New York
Life Investments" or "Manager"), a registered investment adviser and an
indirect, wholly-owned subsidiary of New York Life Insurance Company ("New York
Life"), serves as the Fund's Manager, pursuant to an Amended and Restated
Management Agreement ("Management Agreement"). The Manager provides offices,
conducts clerical, recordkeeping and bookkeeping services, and keeps most of the
financial and accounting records required to be maintained by the Fund. The
Manager also pays the salaries and expenses of all personnel affiliated with the
Fund and all the operational expenses that are not the responsibility of the
Fund. Madison Square Investors LLC ("Madison Square Investors" or "Subadvisor"),
a registered investment adviser and an indirect, wholly-owned subsidiary of New
York Life Investments, serves as Subadvisor to the Fund and is responsible for
the day-to-day portfolio management of the Fund. Pursuant to the terms of an
Amended and Restated Subadvisory Agreement ("Subadvisory Agreement") between New
York Life Investments and the Subadvisor, New York Life Investments pays for the
services of the Subadvisor.
The Fund pays the Manager a monthly fee for services performed and facilities
furnished at an annual rate of 0.85% of the Fund's average daily net assets.
Between May 1, 2008 and September 29, 2008, the Fund paid the Manager a monthly
fee for services performed and facilities furnished as follows: 0.90% on assets
up to $1 billion and 0.85% on assets in excess of $1 billion. Prior to May 1,
2008, the Fund was contractually obligated to pay the Manager a monthly fee for
services performed and facilities furnished at an annual rate of 0.90% of the
average daily net assets of the Fund.
Effective April 1, 2008 (February 28, 2008, for Investor Class shares), New York
Life Investments has entered into a written expense limitation agreement under
which it has agreed to waive a portion of the Fund's management fee or reimburse
the expenses of the appropriate class of the Fund so that the total ordinary
operating expenses of a class (total ordinary operating expenses excludes taxes,
interest, litigation, extraordinary expenses, brokerage, other transaction
expenses relating to the purchase or sale of portfolio investments, and the fees
and expenses of any other funds in which the Fund invests) do not exceed the
following percentages of average daily net assets: Investor Class, 1.45%; Class
A, 1.35%; Class B, 2.20%; Class C, 2.20%; Class I, 1.04%; Class R3, 1.64%. These
expense limitations may be modified or terminated only with the approval of the
Board of Trustees. New York Life Investments may recoup the amount of certain
management fee waivers or expense reimbursements from the Fund pursuant to the
agreement if such action does not cause the Fund to exceed the existing expense
limitations and the recoupment is made within three years after the year in
which New York Life Investments incurred the expense.
For the six-month period ended April 30, 2009, New York Life Investments earned
fees from the Fund in the amount of $217,843 and waived its fees in the amount
of $219,281.
As of April 30, 2009, the amounts of waived fees that are subject to possible
recoupment by the Manager, and the related expiration dates are as follows:
<Table>
<Caption>
OCTOBER 31,
2009 2010 2011 2012 TOTAL
$398,710 $392,067 $491,292 $219,281 $1,501,350
- -----------------------------------------------------------------------------
</Table>
State Street Bank and Trust Company, 1 Lincoln Street, Boston, Massachusetts
02111, provides sub-administration and sub-accounting services to the Fund
pursuant to an agreement with New York Life Investments. These services include
calculating daily NAVs of the Fund, maintaining general ledger and sub-ledger
accounts for the calculation of the Fund's respective NAVs, and assisting New
York Life Investments in conducting various aspects of the Fund's administrative
operations. For providing these services to the Fund, State Street is
compensated by New York Life Investments.
(B) DISTRIBUTION, SERVICE AND SHAREHOLDER SERVICE FEES. The Trust, on behalf of
the Fund, has a Distribution Agreement with NYLIFE Distributors LLC (the
"Distributor"), an indirect, wholly-owned subsidiary of New York Life. The Fund,
with respect to each class of shares,
28 Mainstay Mid Cap Core Fund
other than Class I shares, has adopted distribution plans (the "Plans") in
accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class and Class A Plans, the Distributor receives a
monthly distribution fee from the Fund at an annual rate of 0.25% of the average
daily net assets of the Fund's Investor Class and Class A shares, which is an
expense of the Investor Class and Class A shares of the Fund for distribution or
service activities as designated by the Distributor. Pursuant to the Class B and
Class C Plans, the Fund pays the Distributor a monthly distribution fee, which
is an expense of the Class B and Class C shares of the Fund, at an annual rate
of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Plans provide that the Class B and Class C shares of the Fund also
incur a shareholder service fee at an annual rate of 0.25% of an average daily
net asset value of the Class B and Class C shares of the Fund. Pursuant to the
Class R3 Plan, the Distributor receives a monthly distribution and shareholder
service fee from the Fund at an annual rate of 0.50% of the average daily net
assets of the Fund's Class R3 shares, which is an expense of the Class R3 shares
of the Fund for distribution or service activities as designated by the
Distributor. Class I shares are not subject to a distribution or service fee.
The Plans provide that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
In accordance with the Shareholder Services Plan for the Class R3 shares, the
Manager has agreed to provide, through its affiliates or independent third
parties, various shareholder and administrative support services to shareholders
of the Class R3 shares. For its services, the Manager is entitled to a
Shareholder Service Fee accrued daily and paid monthly at an annual rate of
0.10% of the average daily net assets attributable to the Class R3 shares.
(C) SALES CHARGES. The Fund was advised by the Distributor that the amount of
sales charges retained on sales of Investor Class and Class A shares were $4,011
and $1,286, respectively, for the six-month period ended April 30, 2009. The
Fund was also advised that the Distributor retained contingent deferred sales
charges on redemptions of Class A, Class B and Class C shares of $161, $9,688
and $83, respectively, for the six-month period ended April 30, 2009.
(D) TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. NYLIM
Service Company LLC ("MainStay Investments"), an affiliate of New York Life
Investments, is the Fund's transfer, dividend disbursing and shareholder
servicing agent. MainStay Investments has entered into an agreement with Boston
Financial Data Services pursuant to which it performs certain services for which
MainStay Investments is responsible. Transfer agent expenses incurred by the
Fund for the six-month period ended April 30, 2009, amounted to $187,234.
(E) SMALL ACCOUNT FEES. Shareholders with small accounts adversely impact the
cost of providing transfer agency services. In an effort to reduce total
transfer agency expenses, the Fund has implemented a small account fee on
certain types of accounts. Shareholders with an account balance of less than
$1,000 are charged an annual per account fee of $20 (assessed semi-annually).
These fees are included in transfer agent fees shown on the Statement of
Operations.
(F) CAPITAL. At April 30, 2009, New York Life and its affiliates held
beneficially shares of the Fund with the following values and percentages of net
assets as follows:
<Table>
Class A $ 898 0.0%++
- ------------------------------------------------
Class B 861 0.0++
- ------------------------------------------------
Class C 1,190 0.0++
- ------------------------------------------------
Class R3 6,454 9.3
- ------------------------------------------------
</Table>
++ Less than one-tenth of a percent.
(G) OTHER. Pursuant to the Management Agreement, the cost of legal services
provided to the Fund by the Office of the General Counsel of New York Life
Investments is payable directly by the Fund. For the six-month period ended
April 30, 2009, these fees, which are included in professional fees shown on the
Statement of Operations, were $2,692.
NOTE 4--FEDERAL INCOME TAX:
At October 31, 2008, for federal income tax purposes, capital loss carryforwards
of $20,462,883 were available as shown in the table below, to the extent
provided by the regulations to offset future realized gains of the Fund through
the years indicated. To the extent that these loss carryforwards are used to
offset future capital gains, it is probable that the capital gains so offset
will not be distributed to shareholders.
<Table>
<Caption>
CAPITAL LOSS CAPITAL LOSS
AVAILABLE THROUGH AMOUNTS (000'S)
2016 $20,463
- ------------------------------------
</Table>
mainstayinvestments.com 29
NOTES TO FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
The tax character of distributions paid during the year ended October 31, 2008,
shown in the Statement of Changes in Net Assets, was as follows:
<Table>
<Caption>
2008
Distributions paid from:
Ordinary Income $ 3,838,175
Long-Term Capital Gains 13,457,701
- ------------------------------------------------
Total $17,295,876
- ------------------------------------------------
</Table>
NOTE 5--CUSTODIAN:
State Street is the custodian of cash and securities of the Fund. Custodial fees
are charged to the Fund based on the market value of securities in the Fund and
the number of certain cash transactions incurred by the Fund.
NOTE 6--LINE OF CREDIT:
The Fund, and certain affiliated funds, maintain a line of credit of
$160,000,000 with a syndicate of banks in order to secure a source of funds for
temporary purposes to meet unanticipated or excessive shareholder redemption
requests. Effective September 3, 2008, these Funds pay a commitment fee at an
annual rate of 0.08% of the average commitment amount, regardless of usage, to
The Bank of New York Mellon, which serves as agent to the syndicate. Such
commitment fees are allocated among the Funds based upon net assets and other
factors. Interest on any revolving credit loan is charged based upon the Federal
Funds Advances rate. There were no borrowings made or outstanding with respect
to the Fund on the line of credit during the six-month period ended April 30,
2009.
NOTE 7--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six-month period ended April 30, 2009, purchases and sales of
securities, other than short-term securities, were $46,443 and $52,746,
respectively.
NOTE 8--CAPITAL SHARE TRANSACTIONS:
<Table>
<Caption>
INVESTOR CLASS SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 49,128 $ 662,926
Shares issued to
shareholders in
reinvestment of dividends 10,360 137,475
Shares redeemed (92,024) (1,215,109)
-------------------------
Net decrease in shares
outstanding before
conversion (32,536) (414,708)
Shares converted into
Investor Class (See Note
1) 77,214 997,420
Shares converted from
Investor Class (See Note
1) (92) (1,247)
-------------------------
Net increase 44,586 $ 581,465
=========================
Period ended October 31,
2008 (a):
Shares sold 183,888 $ 4,122,890
Shares redeemed (131,216) (2,750,502)
-------------------------
Net increase in shares
outstanding before
conversion 52,672 1,372,388
Shares converted into
Investor Class (See Note
1) 668,186 14,248,778
Shares converted from
Investor Class (See Note
1) (50,664) (1,040,612)
-------------------------
Net increase 670,194 $ 14,580,554
=========================
(a) Investor Class shares were first offered on
February 28, 2008.
<Caption>
CLASS A SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 128,763 $ 1,753,207
Shares issued to
shareholders in
reinvestment of dividends 18,106 239,728
Shares redeemed (570,824) (7,501,124)
-------------------------
Net decrease in shares
outstanding before
conversion (423,955) (5,508,189)
Shares converted into Class
A
(See Note 1) 4,300 55,411
Shares converted from Class
A
(See Note 1) (59,784) (784,365)
-------------------------
Net decrease (479,439) $ (6,237,143)
=========================
Year ended October 31, 2008:
Shares sold 351,608 $ 8,092,413
Shares issued to
shareholders in
reinvestment of dividends
and distributions 293,427 7,225,656
Shares redeemed (1,108,700) (24,674,277)
-------------------------
Net decrease in shares
outstanding before
conversion (463,665) (9,356,208)
Shares converted into Class
A
(See Note 1) 85,731 1,835,996
Shares converted from Class
A
(See Note 1) (647,209) (13,787,429)
-------------------------
Net decrease (1,025,143) $(21,307,641)
=========================
</Table>
30 Mainstay Mid Cap Core Fund
<Table>
<Caption>
CLASS B SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 42,006 $ 550,591
Shares issued to
shareholders in
reinvestment of dividends 3,049 39,547
Shares redeemed (81,764) (1,054,958)
-------------------------
Net decrease in shares
outstanding before
conversion (36,709) (464,820)
Shares converted from Class
B
(See Note 1) (22,428) (267,219)
-------------------------
Net decrease (59,137) $ (732,039)
=========================
Year ended October 31, 2008:
Shares sold 90,960 $ 1,958,957
Shares issued to
shareholders in
reinvestment of dividends
and distributions 107,820 2,570,293
Shares redeemed (251,248) (5,433,052)
-------------------------
Net decrease in shares
outstanding before
conversion (52,468) (903,802)
Shares converted from Class
B
(See Note 1) (57,582) (1,256,733)
-------------------------
Net decrease (110,050) $ (2,160,535)
=========================
<Caption>
CLASS C SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 20,055 $ 263,332
Shares issued to
shareholders in
reinvestment of dividends 2,458 31,831
Shares redeemed (138,164) (1,788,032)
-------------------------
Net decrease (115,651) $ (1,492,869)
=========================
Year ended October 31, 2008:
Shares sold 91,354 $ 2,020,160
Shares issued to
shareholders in
reinvestment of dividends
and distributions 96,606 2,300,948
Shares redeemed (370,589) (8,027,996)
-------------------------
Net decrease (182,629) $ (3,706,888)
=========================
<Caption>
CLASS I SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 241,519 $ 3,324,215
Shares issued to
shareholders in
reinvestment of dividends 10,472 140,327
Shares redeemed (90,605) (1,210,492)
-------------------------
Net increase 161,386 $ 2,254,050
=========================
Year ended October 31, 2008:
Shares sold 66,248 $ 1,450,090
Shares issued to
shareholders in
reinvestment of dividends
and distributions 100,402 2,505,243
Shares redeemed (281,591) (6,169,633)
-------------------------
Net decrease (114,941) $ (2,214,300)
=========================
<Caption>
CLASS R3 SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 928 $ 12,428
Shares issued to
shareholders in
reinvestment of dividends 45 596
Shares redeemed (184) (2,385)
-------------------------
Net increase 789 $ 10,639
=========================
Year ended October 31, 2008:
Shares sold 1,042 $ 21,854
Shares issued to
shareholders in
reinvestment of dividends
and distributions 434 10,657
Shares redeemed (376) (8,168)
-------------------------
Net increase 1,100 $ 24,343
=========================
</Table>
NOTE 9--NEW ACCOUNTING PRONOUNCEMENTS:
In March 2008, FASB issued the Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS
161"). SFAS 161 is effective for fiscal years and interim periods beginning
after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's
derivative and hedging activities, including how such activities are accounted
for and their effect on the Fund's financial position, performance and cash
flows. Management is currently evaluating the impact the adoption of SFAS 161
will have on the Fund's financial statements and related disclosures.
NOTE 10--SUBSEQUENT EVENT:
At a meeting held on June 23, 2009, the Board approved the Fund's reorganization
with and into the MainStay MAP Fund, subject to approval by shareholders of the
Fund at a special meeting to be held on or about October 16, 2009. On or about
August 26, 2009 shareholders will receive a proxy statement/prospectus
containing further information regarding the MainStay MAP Fund and the proposed
reorganization.
mainstayinvestments.com 31
BOARD CONSIDERATION AND APPROVAL OF NEW SUBADVISORY AGREEMENT
Section 15(c) of the Investment Company Act of 1940, as amended ("1940 Act")
requires that each mutual fund's board of trustees, including a majority of
trustees who are not "interested persons" of the fund, as defined in the 1940
Act ("Independent Trustees"), review and approve the fund's investment advisory
agreements. At its meeting on September 25, 2008, the Board of Trustees of
Eclipse Funds (the "Board" of the "Trust"), which was comprised solely of
Independent Trustees, unanimously approved a new subadvisory agreement (the
"Subadvisory Agreement") between New York Life Investment Management LLC ("New
York Life Investments"), manager of the Trust, and Madison Square Investors LLC
("Madison Square Investors") with respect to the MainStay Mid Cap Core Fund (the
"Fund"). Madison Square Investors is a new affiliate of New York Life
Investments formed to accommodate a lift-out of New York Life Investments'
Equity Investors Group ("EIG"), a division of New York Life Investments that
historically has provided investment advisory services to the Fund, effective
December 27, 2008 (the "Reorganization"). New York Life Investments advised the
Board that EIG would be better positioned in the institutional marketplace as a
separate investment boutique rather than as a division of New York Life
Investments. In considering the approval of the Subadvisory Agreement, the Board
was provided with information from New York Life Investments confirming that, in
connection with the Reorganization: (i) no material change in the nature or the
level of the services provided to the Fund would occur; (ii) no increase in the
investment advisory fees payable by the Fund would be implemented; (iii) no
material changes were expected in the personnel responsible for management of
the Fund; and (iv) existing shareholders would be notified of the
Reorganization. Furthermore, the Board considered an opinion from outside
counsel to New York Life Investments confirming that the Subadvisory Agreement
did not require shareholder approval.
In reaching its decision to approve the Subadvisory Agreement, the Board
considered a variety of information furnished to the Board from New York Life
Investments. The Board also requested and received responses from New York Life
Investments to a comprehensive list of questions encompassing a variety of
topics prepared on behalf of the Board by independent legal counsel to the
Board. The Board considered its historical experience with EIG's capabilities
and resources, and its evaluation of EIG in connection with previous contract
review processes, including contract review processes that culminated with
approval of the management agreement between the Trust, on behalf of the Fund,
and New York Life Investments in April 2008 and again in June 2008 (the "Prior
Contract Review Processes").
In determining to approve the new Subadvisory Agreement, the members of the
Board reviewed and evaluated all of this information and factors they believed
to be relevant and appropriate in light of legal advice furnished to them by
independent legal counsel and through the exercise of their own business
judgment. The broad factors considered by the Board are discussed in greater
detail below, and included, among other things: (i) the nature, extent, and
quality of the services to be provided to the Fund by Madison Square Investors;
(ii) the investment performance of the Fund and the historical investment
performance of similar funds managed by Madison Square Investors; (iii) the
costs of the services to be provided, and profits to be realized, by Madison
Square Investors from its relationship with the Fund; (iv) the extent to which
economies of scale may be realized as the Fund grows, and the extent to which
economies of scale may benefit the Fund's investors; and (v) the reasonableness
of the Fund's management and subadvisory fee levels and overall total ordinary
operating expenses.
While the members of the Board may have weighed certain factors differently, the
Board's decision to approve the Subadvisory Agreement was based on a
comprehensive consideration of all the information provided to the Board in
connection with its review of the Subadvisory Agreement. A more detailed
discussion of the factors that figured prominently in the Board's decision to
approve the Subadvisory Agreement is provided below.
NATURE, EXTENT, AND QUALITY OF SERVICES TO BE PROVIDED
In considering the approval of the Subadvisory Agreement, the Board examined the
nature, extent and quality of the services that EIG historically had provided to
the Fund, and that Madison Square Investors would provide to the Fund. Based on
information provided to the Board in connection with the Prior Contract Review
Processes, the Board acknowledged EIG's historical service to the Fund, and took
note of the experience of EIG's portfolio managers, the number of accounts
managed by the portfolio managers and EIG's method for compensating portfolio
managers. The Board also considered the experience of senior personnel at EIG.
Based on these considerations, the Board concluded, within the context of its
overall determinations regarding the Subadvisory Agreement, that the Fund is
likely to benefit from the nature, extent and quality of these services as a
result of Madison Square Investors' experience, personnel, operations and
resources.
INVESTMENT PERFORMANCE
In evaluating investment performance, the Board took note of the Fund's
historical investment performance results, as presented to the Board in
connection with the Prior Contract Review Processes, with consideration for the
Fund's investment objectives, strategies and risks, as disclosed in the Fund's
prospectus. The Board considered information about the Fund's investment
performance that is provided to the Board in connection with its regularly
32 Mainstay Mid Cap Core Fund
scheduled meetings, and also took note of information provided in connection
with the Prior Contract Review Processes showing the investment performance of
the Fund as compared to similar mutual funds managed by other investment
advisers. The Board also considered the strength of Madison Square Investors'
resources (including research capabilities). Based on these considerations, the
Board concluded, within the context of its overall determinations regarding the
Subadvisory Agreement, that the selection of Madison Square Investors as
subadviser to the Fund is likely to benefit the Fund's long-term investment
performance.
COSTS OF THE SERVICES TO BE PROVIDED BY MADISON SQUARE INVESTORS
The Board considered the estimated costs of the services and profits to be
realized by Madison Square Investors under the Subadvisory Agreement, taking
into account profitability information provided to the Board in connection with
the Prior Contract Review Processes. Because Madison Square Investors is an
affiliate of New York Life Investments whose subadvisory fees for advising the
Fund will be paid directly by New York Life Investments, the Board considered
the cost and profitability information for New York Life Investments and Madison
Square Investors in the aggregate. In evaluating these estimated costs and
profits, the Board considered, among other things, EIG's investments in
personnel, systems, equipment and other resources necessary to manage the Fund.
The Board acknowledged that Madison Square Investors must be in a position to
pay and retain experienced professional personnel to provide services to the
Fund, and that Madison Square Investors' ability to maintain a strong financial
position is important in order for Madison Square Investors to provide high-
quality ongoing services to the Fund and its shareholders.
The Board also considered certain fall-out benefits that may be realized by
Madison Square Investors due to its relationship with the Fund. The Board
recognized, for example, the benefits to Madison Square Investors from legally
permitted "soft-dollar" arrangements by which brokers may provide research and
other services to Madison Square Investors in exchange for commissions paid by
the Fund with respect to trades on the Fund's portfolio securities.
After evaluating the information presented to the Board, the Board concluded,
within the context of its overall determinations regarding the Subadvisory
Agreement, that any profits realized by Madison Square Investors due to its
relationship with the Fund will be fair and reasonable.
EXTENT TO WHICH ECONOMIES OF SCALE MAY BE REALIZED AS THE FUND GROWS
The Board also considered whether the Fund's expense structure permitted
economies of scale to be shared with the Fund's investors. Based on information
provided to the Board in connection with the Prior Contract Review Processes,
the Board took note of the extent to which the Fund benefits from economies of
scale through expense waivers and reimbursements. The Board also observed that
New York Life Investments historically has subsidized the Fund's overall
expenses through the operation of contractual expense limitations that may be
lifted only with prior approval of the Board.
Based on this information, the Board concluded, within the context of its
overall determinations regarding the Subadvisory Agreement, that the Fund's fee
schedule and expense structure appropriately reflect economies of scale for the
benefit of the Fund's investors. The Board noted, however, that it would
continue to evaluate the reasonableness of the Fund's expense structure as the
Fund continues to grow over time.
MANAGEMENT AND SUBADVISORY FEES AND TOTAL ORDINARY OPERATING EXPENSES
The Board considered the reasonableness of the fees to be paid under the
existing management and new Subadvisory Agreement, and the Fund's total ordinary
operating expenses. The Board considered that the fees to be paid to Madison
Square Investors under the Subadvisory Agreement are paid by New York Life
Investments, not the Fund, and will result in no increase in the Fund's
expenses. The Board noted that New York Life Investments will retain half of its
management fee under the new Subadvisory Agreement with Madison Square
Investors, consistent with the management and subadvisory fee structure used for
other subadvisory relationships between New York Life Investments and its
affiliates.
In assessing the reasonableness of the Fund's management and subadvisory fees
and total ordinary operating expenses, the Board took note of fee and expense
arrangements that had been negotiated by the Board with New York Life
Investments in recent years and observed that New York Life Investments has
subsidized the total ordinary operating expenses of the Fund's share classes
through the imposition of expense limitation arrangements that may be modified
only with the prior approval of the Board.
Based on these considerations, the Board concluded that the Fund's management
and subadvisory fees and total ordinary operating expenses were within a range
that is competitive and, within the context of the Board's overall conclusions
regarding the Subadvisory Agreement, supports the conclusion that these fees to
be paid under the Subadvisory Agreement are reasonable.
CONCLUSION
On the basis of the information provided to it and its evaluation thereof, the
Board, which consisted entirely of Independent Trustees, unanimously approved
the new Subadvisory Agreement with Madison Square Investors.
mainstayinvestments.com 33
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
A description of the policies and procedures that New York Life Investments uses
to vote proxies related to the Fund's securities is available without charge,
upon request, (i) by visiting the Fund's website at mainstayinvestments.com; and
(ii) on the Securities and Exchange Commission's ("SEC") website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-
month period ending June 30 on Form N-PX. The Fund's most recent Form N-PX is
available free of charge upon request by calling 800-MAINSTAY (624-6782);
visiting the Funds' website at mainstayinvestments.com; or on the SEC's website
at www.sec.gov.
SHAREHOLDER REPORTS AND QUARTERLY PORTFOLIO DISCLOSURE
The Fund is required to file its complete schedule of portfolio holdings with
the SEC for its first and third fiscal quarters on Form N-Q. The Funds' Form N-Q
is available without charge, on the SEC's website at www.sec.gov or by calling
MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review
copies of Form N-Q by visiting the SEC's Public Reference Room in Washington, DC
(information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330).
34 Mainstay Mid Cap Core Fund
MAINSTAY FUNDS
MAINSTAY OFFERS A WIDE RANGE OF FUNDS FOR VIRTUALLY ANY INVESTMENT NEED. THE
FULL ARRAY OF MAINSTAY OFFERINGS IS LISTED HERE, WITH INFORMATION ABOUT THE
MANAGER, SUBADVISORS, LEGAL COUNSEL, AND INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.
EQUITY FUNDS
MAINSTAY 130/30 CORE FUND
MAINSTAY 130/30 GROWTH FUND
MAINSTAY ALL CAP GROWTH FUND
MAINSTAY CAPITAL APPRECIATION FUND
MAINSTAY COMMON STOCK FUND
MAINSTAY EQUITY INDEX FUND(1)
MAINSTAY GROWTH EQUITY FUND
MAINSTAY ICAP EQUITY FUND
MAINSTAY ICAP SELECT EQUITY FUND
MAINSTAY LARGE CAP GROWTH FUND
MAINSTAY MAP FUND
MAINSTAY MID CAP GROWTH FUND
MAINSTAY MID CAP CORE FUND
MAINSTAY MID CAP VALUE FUND
MAINSTAY S&P 500 INDEX FUND
MAINSTAY SMALL CAP GROWTH FUND
MAINSTAY SMALL COMPANY VALUE FUND
MAINSTAY VALUE FUND
INCOME FUNDS
MAINSTAY 130/30 HIGH YIELD FUND
MAINSTAY CASH RESERVES FUND
MAINSTAY DIVERSIFIED INCOME FUND
MAINSTAY FLOATING RATE FUND
MAINSTAY GOVERNMENT FUND
MAINSTAY HIGH YIELD CORPORATE BOND FUND
MAINSTAY INDEXED BOND FUND
MAINSTAY INSTITUTIONAL BOND FUND
MAINSTAY INTERMEDIATE TERM BOND FUND
MAINSTAY MONEY MARKET FUND
MAINSTAY PRINCIPAL PRESERVATION FUND
MAINSTAY SHORT TERM BOND FUND
MAINSTAY TAX FREE BOND FUND
BLENDED FUNDS
MAINSTAY BALANCED FUND
MAINSTAY CONVERTIBLE FUND
MAINSTAY INCOME MANAGER FUND
MAINSTAY TOTAL RETURN FUND
INTERNATIONAL FUNDS
MAINSTAY 130/30 INTERNATIONAL FUND
MAINSTAY GLOBAL HIGH INCOME FUND
MAINSTAY ICAP GLOBAL FUND
MAINSTAY ICAP INTERNATIONAL FUND
MAINSTAY INTERNATIONAL EQUITY FUND
ASSET ALLOCATION FUNDS
MAINSTAY CONSERVATIVE ALLOCATION FUND
MAINSTAY GROWTH ALLOCATION FUND
MAINSTAY MODERATE ALLOCATION FUND
MAINSTAY MODERATE GROWTH ALLOCATION FUND
RETIREMENT FUNDS
MAINSTAY RETIREMENT 2010 FUND
MAINSTAY RETIREMENT 2020 FUND
MAINSTAY RETIREMENT 2030 FUND
MAINSTAY RETIREMENT 2040 FUND
MAINSTAY RETIREMENT 2050 FUND
MANAGER
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
NEW YORK, NEW YORK
SUBADVISORS
INSTITUTIONAL CAPITAL LLC(2)
CHICAGO, ILLINOIS
MACKAY SHIELDS LLC(2)
NEW YORK, NEW YORK
MADISON SQUARE INVESTORS LLC(2)
NEW YORK, NEW YORK
MARKSTON INTERNATIONAL LLC
WHITE PLAINS, NEW YORK
STANDISH MELLON ASSET MANAGEMENT COMPANY LLC
BOSTON, MASSACHUSETTS
WINSLOW CAPITAL MANAGEMENT, INC.
MINNEAPOLIS, MINNESOTA
LEGAL COUNSEL
DECHERT LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
PLEASE CONTACT YOUR INVESTMENT PROFESSIONAL OR CALL 800-MAINSTAY (624-6782) FOR
A FREE PROSPECTUS. INVESTORS ARE ASKED TO CONSIDER THE INVESTMENT OBJECTIVES,
RISKS, AND CHARGES AND EXPENSES OF THE INVESTMENT CAREFULLY BEFORE INVESTING.
THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION ABOUT THE INVESTMENT COMPANY.
PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
1. Closed to new investors and new purchases as of January 1, 2002.
2. An affiliate of New York Life Investment Management LLC.
Not part of the Semiannual Report
<Table>
<Caption>
-----------------------------------------------------
Not FDIC insured. No bank guarantee. May lose value.
</Table>
NYLIFE DISTRIBUTORS LLC, 169 LACKAWANNA AVENUE,
PARSIPPANY, NEW JERSEY 07054
This report may be distributed only when preceded or accompanied
by a current Fund prospectus.
mainstayinvestments.com Eclipse Funds
(C) 2009 by NYLIFE Distributors LLC. All rights reserved.
SEC File Number: 811-04847
NYLIM-AO15916 (RECYCLE LOGO) MS140-09 MSMCC10-06/09
A5
(MAINSTAY LOGO)
MAINSTAY
SMALL COMPANY VALUE FUND
Message from the President
and
Semiannual Report
Unaudited
April 30, 2009
MESSAGE FROM THE PRESIDENT
The six-month period ended April 30, 2009, proved to be a historically volatile
time for the U.S. economy. Earlier in the year, many financial companies faced
setbacks and market liquidity dried up. Fortunately, the U.S. Treasury, the
Federal Reserve and other central banks and agencies worked together in an
effort to restore investor confidence.
Gross domestic product continued to decline in the fourth quarter of 2008 and
the first quarter of 2009. Fortunately, first-quarter earnings reports for
several companies, especially financials, were not as bad as some had earlier
feared. A rally in the retailing industry suggested that consumer spending might
revive. And preliminary first-quarter data from the Bureau of Economic Analysis
showed that personal consumption expenditures helped soften the economy's rate
of decline in the first quarter of 2009.
Although the stock market rallied from late November through early January, it
then declined through early March, with some major market indexes and averages
reaching levels that investors hadn't seen in more than 12 years. By March 9,
2009, many investors felt that the market had reached its low point, and the
stock market gradually recovered a good deal of what it had lost--not enough,
however, to end the reporting period in positive territory.
In the bond market, the earlier flight toward low-risk investments softened as
the Federal Open Market Committee reduced the targeted federal funds rate to a
range between 0% and 0.25%. With strong government support, including the
promise of purchases by the Federal Reserve, the mortgage-backed and asset-
backed securities markets began to regain their footing. Trillions of dollars
were poured into the markets, risk aversion softened and higher-yielding
securities gained substantial ground. Indeed, most fixed-income sectors recorded
positive returns for the six-month reporting period. This trend was encouraging
news for bond investors.
Throughout the reporting period, the portfolio managers of the MainStay Funds
continued to pursue the investment objectives, strategies and processes of their
respective Funds. Some were able to identify opportunities, reposition Fund
holdings, or otherwise take advantage of a difficult market environment. With a
steadfast focus on long-term investment potential, our portfolio managers sought
to weather market volatility and maintain a positive outlook.
Investors concerned about recent market events might benefit from their example.
With careful investing, appropriate diversification, gradual adjustments,
continual reevaluation and ongoing assistance from a financial professional,
investors may be able to improve the way they pursue their long-range goals.
At MainStay, we are pleased to be a part of your investment program, and we hope
that you will continue to invest with us for many years to come. While past
performance is no guarantee of future results, we are encouraged when the
economy provides positive indicators. Like you, we look forward to better days
ahead.
Sincerely,
/s/ STEPHEN P. FISHER
Stephen P. Fisher
President
Not part of the Semiannual Report
(MAINSTAY LOGO)
MAINSTAY
SMALL COMPANY VALUE FUND
MainStay Funds
Semiannual Report
Unaudited
April 30, 2009
TABLE OF CONTENTS
<Table>
SEMIANNUAL REPORT
- ---------------------------------------------
INVESTMENT AND PERFORMANCE COMPARISON 5
- ---------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION AND
ANALYSIS 9
- ---------------------------------------------
PORTFOLIO OF INVESTMENTS 11
- ---------------------------------------------
FINANCIAL STATEMENTS 14
- ---------------------------------------------
NOTES TO FINANCIAL STATEMENTS 21
- ---------------------------------------------
BOARD CONSIDERATION AND APPROVAL OF NEW
SUBADVISORY AGREEMENTS 28
- ---------------------------------------------
SPECIAL MEETING OF SHAREHOLDERS 32
- ---------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES AND
PROXY VOTING RECORD 33
- ---------------------------------------------
SHAREHOLDER REPORTS AND QUARTERLY
PORTFOLIO DISCLOSURE 33
INVESTMENT AND PERFORMANCE COMPARISON(1)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE, AND AS A RESULT, WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE INFORMATION CURRENT
TO THE MOST RECENT MONTH-END, PLEASE CALL 800-MAINSTAY (624-6782) OR VISIT
MAINSTAYINVESTMENTS.COM.
INVESTOR CLASS SHARES(2)--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- -------------------------------------------------------------
With sales charges -8.90% -32.30% -4.61% 2.45%
Excluding sales charges -3.60 -28.36 -3.52 3.03
</Table>
(With sales charges)
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY SMALL
COMPANY VALUE RUSSELL 2000
FUND VALUE INDEX
-------------- -------------
4/30/99 9450 10000
4/30/00 9521 10440
4/30/01 9757 12971
4/30/02 11775 15881
4/30/03 10443 12888
4/30/04 15232 18359
4/30/05 17962 20159
4/30/06 23101 26378
4/30/07 24051 29339
4/30/08 17773 24900
4/30/09 12733 17089
</Table>
CLASS A SHARES(3)--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- -------------------------------------------------------------
With sales charges -8.83% -32.12% -4.57% 2.46%
Excluding sales charges -3.52 -28.17 -3.48 3.05
</Table>
(With sales charges)
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY SMALL
COMPANY VALUE RUSSELL 2000
FUND VALUE INDEX
-------------- -------------
4/30/99 23625 25000
4/30/00 23801 26099
4/30/01 24392 32427
4/30/02 29436 39701
4/30/03 26106 32221
4/30/04 38079 45898
4/30/05 44904 50397
4/30/06 57752 65946
4/30/07 60128 73348
4/30/08 44400 62250
4/30/09 31892 42722
</Table>
CLASS B SHARES(3)--MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- -------------------------------------------------------------
With sales charges -8.71% -32.30% -4.52% 2.26%
Excluding sales charges -3.98 -28.80 -4.26 2.26
</Table>
(With sales charges)
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY SMALL
COMPANY VALUE RUSSELL 2000
FUND VALUE INDEX
-------------- -------------
4/30/99 10000 10000
4/30/00 10005 10440
4/30/01 10172 12971
4/30/02 12184 15881
4/30/03 10740 12888
4/30/04 15544 18359
4/30/05 18176 20159
4/30/06 23193 26378
4/30/07 23973 29339
4/30/08 17561 24900
4/30/09 12504 17089
</Table>
1. Performance tables and graphs do not reflect the deduction of taxes that a
shareholder would pay on distributions or Fund-share redemptions. Total
returns reflect maximum applicable sales charges explained in this paragraph,
change in share price, and reinvestment of dividend and capital gain
distributions. The graphs assume an initial investment of $25,000 for Class A
shares and $10,000 for all other classes and reflect the deduction of all
sales charges that would have applied for the period of investment. Class A
shares generally have a $25,000 minimum initial investment with no minimum
subsequent purchase amount. For investors that, in the aggregate, have assets
of $100,000 or more invested in any share classes of any of the MainStay
Funds, the minimum initial investment is $15,000. Investor Class shares and
Class A shares are sold with a maximum initial sales charge of 5.50% and an
annual 12b-1 fee of 0.25%. Class B shares are sold with no initial sales
charge, are subject to a contingent deferred sales charge ("CDSC") of up to
5.00% if redeemed within the first six years of purchase, and have an annual
12b-1 fee of 1.00%. Class C shares are sold with no initial sales charge, are
subject to a CDSC of 1.00% if redeemed within one year of purchase, and have
an annual 12b-1 fee of 1.00%. Class I shares are sold with no initial sales
charge or CDSC, have no annual 12b-1 fee, and are generally available to
corporate and institutional investors or individual investors with a minimum
initial investment of $5 million. Performance figures reflect certain fee
waivers and/or expense limitations, without which total returns may have been
lower. These fee waivers and/or expense limitations are contractual and may
be modified or terminated only with the approval of the Board of Trustees.
THE FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THE TABLES AND GRAPHS AND
SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
mainstayinvestments.com 5
CLASS C SHARES(4)--MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- -------------------------------------------------------------
With sales charges -4.84% -29.49% -4.23% 2.28%
Excluding sales charges -3.90 -28.79 -4.23 2.28
</Table>
(With sales charges)
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY SMALL
CAP OPPORTUNITY RUSSELL 2000
FUND VALUE INDEX
--------------- -------------
4/30/99 10000 10000
4/30/00 10005 10440
4/30/01 10173 12971
4/30/02 12177 15881
4/30/03 10741 12888
4/30/04 15549 18359
4/30/05 18193 20159
4/30/06 23226 26378
4/30/07 23995 29339
4/30/08 17589 24900
4/30/09 12525 17089
</Table>
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- ------------------------------------------------------
-3.32% -27.92% -3.03% 3.41%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY SMALL
CAP OPPORTUNITY RUSSELL 2000
FUND VALUE INDEX
--------------- -------------
4/30/99 10000 10000
4/30/00 10105 10440
4/30/01 10382 12971
4/30/02 12552 15881
4/30/03 11164 12888
4/30/04 16306 18359
4/30/05 19335 20159
4/30/06 24961 26378
4/30/07 26125 29339
4/30/08 19399 24900
4/30/09 13982 17089
</Table>
<Table>
<Caption>
BENCHMARK PERFORMANCE SIX ONE FIVE TEN
MONTHS YEAR YEARS YEARS
Russell 2000(R) Value Index(5) -12.60% -31.37% -1.42% 5.50%
Average Lipper small-cap value fund(6) -7.06 -31.60 -1.56 5.50
</Table>
The Manager may recoup the amount of certain management fee waivers or
expense reimbursements from the Fund pursuant to the contract if such action
does not cause the Fund to exceed existing expense limitations and the
recoupment is made within three years after the year in which the Manager
incurred the expense. Effective February 13, 2009, MainStay Small Cap
Opportunity Fund changed its name to MainStay Small Company Value Fund.
2. Performance figures for Investor Class shares, first offered on February 28,
2008, include the historical performance of Class A shares through February
27, 2008, adjusted for differences in certain contractual expenses and fees.
Unadjusted, the performance shown for Investor Class shares might have been
lower.
3. Performance figures for Class A and B shares, first offered on January 1,
2004, include the historical performance of Class I shares through December
31, 2003, adjusted for differences in certain contractual expenses and fees.
Unadjusted, the performance shown for Class A and Class B shares might have
been lower.
4. Performance figures for Class C shares, first offered on January 1, 2004,
include the historical performance of L Class shares (which were redesignated
as Class C shares on January 1, 2004) from December 30, 2002, through
December 31, 2003, and the historical performance of Class I shares through
December 29, 2002, adjusted for differences in certain contractual expenses
and fees. Unadjusted, the performance shown for Class C shares might have
been lower.
5. The Russell 2000(R) Value Index measures the performance of those Russell
2000 companies with lower price-to-book ratios and lower forecasted growth
values. The Russell 2000(R) Index measures the performance of the 2,000
smallest companies in the Russell 3000(R) Index, which, in turn, measures the
performance of the 3,000 largest U.S. companies based on total market
capitalization. Total returns assume reinvestment of all dividends and
capital gains. The Russell 2000(R) Value Index is the Fund's broad-based
securities market index for comparison purposes. An investment cannot be made
directly in an index.
6. The average Lipper small-cap value fund is representative of funds that, by
portfolio practice, invest at least 75% of their equity assets in companies
with market capitalizations (on a three-year weighted basis) below Lipper's
U.S. Diversified Equity small-cap ceiling. Small-cap value funds typically
have a below-average price-to-earnings ratio, price-to-book ratio, and three-
year sales-per-share growth value, compared to the S&P SmallCap 600 Index.
This benchmark is a product of Lipper Inc. Lipper Inc. is an independent
monitor of fund performance. Results are based on average total returns of
similar funds with all dividend and capital gain distributions reinvested.
THE FOOTNOTE ON THE PRECEDING PAGE IS AN INTEGRAL PART OF THE TABLES AND GRAPHS
AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
6 MainStay Small Company Value Fund
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY SMALL COMPANY VALUE FUND
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from November 1, 2008, to April 30,
2009, and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, exchange fees, and sales charges (loads) on
purchases (as applicable), and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses (as
applicable). This example is intended to help you understand your ongoing costs
(in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds. The example is based on an
investment of $1,000 made at the beginning of the six-month period and held for
the entire period from November 1, 2008, to April 30, 2009.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested, to estimate the expenses that
you paid during the six-months ended April 30, 2009. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 11/1/08 4/30/09 PERIOD(1) 4/30/09 PERIOD(1)
INVESTOR CLASS SHARES $1,000.00 $964.00 $ 8.33 $1,016.30 $ 8.55
- --------------------------------------------------------------------------------------------------------
CLASS A SHARES $1,000.00 $964.80 $ 7.50 $1,017.20 $ 7.70
- --------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $960.20 $11.62 $1,012.90 $11.93
- --------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $961.00 $11.62 $1,012.90 $11.93
- --------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $966.80 $ 5.75 $1,018.90 $ 5.91
- --------------------------------------------------------------------------------------------------------
1. Expenses are equal to the Fund's annualized expense ratio of each class
(1.71% for Investor Class, 1.54% for Class A, 2.39% for Class B and Class C
and 1.18% for Class I) multiplied by the average account value over the
period, divided by 365 and multiplied by 181 (to reflect the one-half year
period). The table above represents the actual expenses incurred during the
one-half year period.
mainstayinvestments.com 7
INDUSTRY COMPOSITION AS OF APRIL 30, 2009
<Table>
<Caption>
Insurance 7.9%
Specialty Retail 6.9
Semiconductors & Semiconductor
Equipment 6.3
Communications Equipment 5.9
Pharmaceuticals 5.2
Oil, Gas & Consumable Fuels 5.1
Commercial Banks 4.5
Electronic Equipment & Instruments 4.5
Computers & Peripherals 4.1
Hotels, Restaurants & Leisure 3.5
Thrifts & Mortgage Finance 2.9
Chemicals 2.8
Machinery 2.8
Electrical Equipment 2.4
Metals & Mining 2.4
Construction & Engineering 2.3
Commercial Services & Supplies 2.2
Biotechnology 1.9
Building Products 1.9
Electric Utilities 1.9
Capital Markets 1.8
Auto Components 1.6
Independent Power Producers &
Energy Traders 1.6
Professional Services 1.6
IT Services 1.5
Trading Companies & Distributors 1.4
Energy Equipment & Services 1.3
Diversified Consumer Services 1.2
Paper & Forest Products 1.2
Air Freight & Logistics 1.1
Industrial Conglomerates 1.1
Aerospace & Defense 1.0
Textiles, Apparel & Luxury Goods 1.0
Airlines 0.9
Health Care Providers & Services 0.8
Health Care Equipment & Supplies 0.2
Short-Term Investment 2.2
Cash and Other Assets, Less
Liabilities 1.1
-----
100.0%
=====
</Table>
See Portfolio of Investments on page 11 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF APRIL 30, 2009 (EXCLUDING SHORT-TERM INVESTMENT)
<Table>
1. Impax Laboratories, Inc.
2. Teradyne, Inc.
3. Armstrong World Industries, Inc.
4. 3Com Corp.
5. Cabot Corp.
6. Reliant Energy, Inc.
7. ADC Telecommunications, Inc.
8. CDI Corp.
9. Celera Corp.
10. Cooper Tire & Rubber Co.
</Table>
8 MainStay Small Company Value Fund
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
QUESTIONS ANSWERED BY PORTFOLIO MANAGERS JORDAN D. ALEXANDER, CFA, AND STEPHEN
A. FRISCIA, JR., CFA, OF MACKAY SHIELDS LLC, THE FUND'S SUBADVISOR.
HOW DID MAINSTAY SMALL COMPANY VALUE FUND PERFORM RELATIVE TO ITS PEERS AND ITS
BENCHMARK FOR THE SIX-MONTH REPORTING PERIOD?
Excluding all sales charges, MainStay Small Company Value Fund returned -3.60%
for Investor Class shares, -3.52% for Class A shares, -3.98% for Class B shares
and -3.90% for Class C shares for the six months ended April 30, 2009. Over the
same period, the Fund's Class I shares returned -3.32%. All share classes
outperformed the -7.06% return of the average Lipper(1) small-cap value fund and
the -12.60% return of the Russell 2000(R) Value Index(2) for the six months
ended April 30, 2009. The Russell 2000(R) Value Index is the Fund's broad-based
securities- market index. See pages 5 and 6 for Fund returns with sales charges.
WERE THERE ANY SIGNIFICANT CHANGES IN THE FUND'S INVESTMENT APPROACH OR
PORTFOLIO MANAGEMENT DURING THE REPORTING PERIOD?
Effective January 30, 2009, the Fund changed its principal investment strategy,
investment process and principal risks. Effective February 13, 2009, the Fund
changed its name from MainStay Small Cap Opportunity Fund to MainStay Small
Company Value Fund. Effective January 21, 2009, the Subadvisory Agreement
between the Manager and Madison Square Investors LLC, the Funds Subadvisor, was
terminated and MacKay Shields LLC became Subadvisor of the Fund. At the same
time, Jordan Alexander and Stephen Friscia were named portfolio managers.
Additional information regarding these changes, the Fund's new portfolio
managers and other matters is contained in the MainStay Equity Funds Prospectus
dated March 2, 2009.
WHAT FACTORS WERE RESPONSIBLE FOR THE FUND'S RELATIVE PERFORMANCE DURING THE
REPORTING PERIOD?
The Fund's strong performance relative to the Russell 2000(R) Value Index and
its peers resulted from our adhering to a strategy that focuses on stocks with
attractive valuations, solid balance sheets and the potential to generate strong
cash flow over full market cycles. Economic and market conditions during the
reporting period created many investment opportunities that fit these criteria,
and we took advantage of these opportunities to add value to the Fund.
WHICH SECTORS MADE THE STRONGEST CONTRIBUTIONS TO THE FUND'S PERFORMANCE DURING
THE REPORTING PERIOD AND WHICH SECTORS WERE THE WEAKEST?
During the reporting period, information technology, industrials and consumer
discretionary made the strongest sector contributions to the Fund's performance
in relation to the Russell 2000(R) Value Index. All three sectors contributed
positively to the Fund's absolute performance because they were among the most
sensitive to the recent economic upturn that occurred at the end of the
reporting period.
The health care, telecommunication services and energy sectors detracted the
most from the Fund's performance relative to the benchmark. In light of
unusually weak capital spending by end customers, all three sectors contributed
negatively to absolute performance.
DURING THE REPORTING PERIOD, WHICH STOCKS WERE THE FUND'S STRONGEST CONTRIBUTORS
TO ABSOLUTE PERFORMANCE AND WHICH STOCKS WERE THE WEAKEST?
The three strongest individual contributors to the Fund's performance during the
reporting period were STEC, a computer memory device manufacturer; Vishay
Intertechnology, a semiconductor and electronic components manufacturer; and ADC
Telecommunications, a provider of broadband communica-tions network
infrastructure products and related services. Better-than-expected earnings
growth helped all three stocks return more than 100% for the Fund during the
reporting period. We added to the Fund's positions in each of these stocks at
favorable prices during the reporting period, which boosted the Fund's returns
relative to the Russell 2000(R) Value Index.
- ----------
Investment in common stocks and other equity securities is particularly subject
to the risk of changing economic, stock market, industry and company conditions
and the risks inherent in management's ability to anticipate those changes that
can adversely affect the value of the Fund's holdings. Stocks of small-
capitalization companies may be subject to greater price volatility,
significantly lower trading volumes, cyclical, static or moderate growth
prospects and greater spreads between bid and ask prices than stocks of larger
companies. Small-capitalization companies may be more vulnerable to adverse
business or market developments than large-capitalization companies. The
principal risk of investing in value stocks is that they may never reach what
the portfolio manager believes is their full value or that they may even go down
in value. The Fund's use of securities lending presents the risk of default by
the borrower, which may result in a loss to the Fund. The Fund may experience a
portfolio turnover rate of more than 100% and may generate taxable short-term
capital gains.
1. See footnote on page 6 for more information on Lipper Inc.
2. See footnote on page 6 for more information on the Russell 2000(R) Value
Index.
mainstayinvestments.com 9
The weakest individual contributors to performance were transportation services
company Pacer International, commercial bank National Penn Bancshares, and
savings and loan and financial holding company First Financial Holdings. Pacer
International's shares declined, as the company faced weak volume in its core
intermodal logistics business. The Fund continued to hold the position, however,
because the stock appeared undervalued. We also felt that the company was well
positioned to benefit from any improvement in the economy. Shares of National
Penn Bancshares and First Financial Holdings declined on investor concerns about
the companies' exposure to potentially risky credits. We sold the Fund's
positions in these two financial companies to pursue what we believed to be more
attractive opportunities.
DID THE FUND MAKE ANY SIGNIFICANT PURCHASES OR SALES DURING THE REPORTING
PERIOD?
Aside from the transactions mentioned above, the Fund added children's apparel
retailer Children's Place Retail Stores and investment bank Jefferies Group to
the Fund. Children's Place Retail Stores is a high cash-flow business with a
strong balance sheet. Our analysis indicated that the company had continued to
streamline its cost structure and was benefiting from a consumer shift to more
value-oriented clothing. We did not believe the company's valuation reflected
the company's growing market share and higher earnings power, and we purchased
the stock at levels that we felt were attractive. We invested in Jefferies Group
because it had avoided significant exposure to the troubled securities that
plagued many of its larger competitors. Given the company's apparent ability to
operate without government support, Jefferies Group has attracted top talent,
and in our view, the company was well positioned to enter new lines of business
and increase its market share. At the time of our purchase, Jefferies Group was
trading close to its liquidation value, which we felt was an attractive level
for a quality franchise with historically high returns on equity and significant
growth opportunities.
During the reporting period, we sold the Fund's position in Emulex, a
semiconductor component and integrated circuit supplier. A takeover bid caused
the company's share price to rise. However, at that point, we felt Emulex no
longer offered an attractive risk-adjusted return. We also sold the Fund's
position in Alaska Airlines. When the shares reached our estimate of fair value,
we decided that other opportunities offered a better risk-adjusted return.
WERE THERE ANY NOTABLE CHANGES IN THE FUND'S SECTOR WEIGHTINGS DURING THE
REPORTING PERIOD?
We moderately increased the Fund's weightings in the information technology and
health care sectors during the reporting period and decreased the Fund's
weightings in the financials and consumer staples sectors.
HOW WAS THE FUND POSITIONED AT THE END OF THE REPORTING PERIOD?
As of April 30, 2009, the Fund was moderately overweight relative to the Russell
2000(R) Value Index in the information technology and health care sectors. The
overweight position in information technology benefited the Fund's relative
performance during the reporting period, but the Fund's overweight position in
health care detracted.
As of the same date, the Fund was significantly underweight relative to the
Russell 2000(R) Value Index in the financials sector and moderately underweight
in the utilities sector. Both of these underweight positions contributed
positively to the Fund's relative results during the reporting period.
- ----------
The opinions expressed are those of the portfolio managers as of the date of
this report and are subject to change. There is no guarantee that any forecast
made will come to pass. This material does not constitute investment advice and
is not intended as an endorsement of any specific investment.
10 MainStay Small Company Value Fund
PORTFOLIO OF INVESTMENTS APRIL 30, 2009 UNAUDITED
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS 96.7%+
- -------------------------------------------------------------
AEROSPACE & DEFENSE 1.0%
AerCap Holdings N.V. (a) 412,300 $ 1,929,564
-------------
AIR FREIGHT & LOGISTICS 1.1%
Pacer International, Inc. 484,616 2,054,772
-------------
AIRLINES 0.9%
Airtran Holdings, Inc. (a) 251,700 1,749,315
-------------
AUTO COMPONENTS 1.6%
V Cooper Tire & Rubber Co. 344,900 2,852,323
-------------
BIOTECHNOLOGY 1.9%
V Celera Corp. (a) 354,700 2,869,523
InterMune, Inc. (a) 48,000 649,920
-------------
3,519,443
-------------
BUILDING PRODUCTS 1.9%
V Armstrong World
Industries, Inc. (a) 190,600 3,465,108
-------------
CAPITAL MARKETS 1.8%
Jefferies Group, Inc. 69,200 1,354,244
Piper Jaffray Cos. (a) 34,753 1,204,887
Thomas Weisel Partners Group,
Inc. (a) 124,800 564,096
Virtus Investment Partners,
Inc. (a) 12,852 145,870
-------------
3,269,097
-------------
CHEMICALS 2.8%
V Cabot Corp. 219,300 3,201,780
OM Group, Inc. (a) 68,990 1,922,061
-------------
5,123,841
-------------
COMMERCIAL BANKS 4.5%
Comerica, Inc. 104,700 2,196,606
First Horizon National Corp. 135,577 1,560,491
Investors Bancorp, Inc. (a) 276,700 2,534,572
SVB Financial Group (a) 90,100 1,870,476
-------------
8,162,145
-------------
COMMERCIAL SERVICES & SUPPLIES 2.2%
American Reprographics Co.
(a) 268,800 1,733,760
Steelcase, Inc. Class A 499,000 2,260,470
-------------
3,994,230
-------------
COMMUNICATIONS EQUIPMENT 5.9%
V 3Com Corp. (a) 809,501 3,278,479
V ADC Telecommunications,
Inc. (a) 391,800 2,883,648
Avocent Corp. (a) 123,981 1,790,286
Extreme Networks, Inc. (a) 617,900 1,087,504
Sonus Networks, Inc. (a) 1,032,600 1,786,398
-------------
10,826,315
-------------
COMPUTERS & PERIPHERALS 4.1%
Electronics for Imaging, Inc.
(a) 235,732 2,314,888
NCR Corp. (a) 262,900 2,668,435
STEC, Inc. (a) 259,800 2,494,080
-------------
7,477,403
-------------
CONSTRUCTION & ENGINEERING 2.3%
EMCOR Group, Inc. (a) 89,086 1,852,098
Pike Electric Corp. (a) 220,400 2,287,752
-------------
4,139,850
-------------
DIVERSIFIED CONSUMER SERVICES 1.2%
Brinks Home Security
Holdings, Inc. (a) 81,500 2,166,270
-------------
ELECTRIC UTILITIES 1.9%
Cleco Corp. 82,982 1,750,091
Idacorp, Inc. 76,259 1,827,928
-------------
3,578,019
-------------
ELECTRICAL EQUIPMENT 2.4%
Acuity Brands, Inc. 55,559 1,596,766
C&D Technologies, Inc. (a) 480,400 1,052,076
LSI Industries, Inc. 297,800 1,670,658
-------------
4,319,500
-------------
ELECTRONIC EQUIPMENT & INSTRUMENTS 4.5%
Methode Electronics, Inc. 176,667 1,063,535
Tech Data Corp. (a) 88,300 2,542,157
TTM Technologies, Inc. (a) 268,900 1,995,238
Vishay Intertechnology, Inc.
(a) 460,800 2,704,896
-------------
8,305,826
-------------
ENERGY EQUIPMENT & SERVICES 1.3%
Key Energy Services, Inc. (a) 558,500 2,451,815
-------------
HEALTH CARE EQUIPMENT & SUPPLIES 0.2%
Home Diagnostics, Inc. (a) 49,000 291,060
-------------
HEALTH CARE PROVIDERS & SERVICES 0.8%
Magellan Health Services,
Inc. (a) 52,236 1,544,096
-------------
HOTELS, RESTAURANTS & LEISURE 3.5%
AFC Enterprises, Inc. (a) 276,500 1,717,065
Jack in the Box, Inc. (a) 93,364 2,295,821
Wendy's/Arby's Group, Inc. 465,600 2,328,000
-------------
6,340,886
-------------
</Table>
+ Percentages indicated are based on Fund net assets.
v Among the Fund's 10 largest holdings, as of April 30, 2009, excluding short-
term investment. May be subject to change daily.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
11
PORTFOLIO OF INVESTMENTS APRIL 30, 2009 UNAUDITED (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 1.6%
V Reliant Energy, Inc. (a) 604,500 $ 2,998,320
-------------
INDUSTRIAL CONGLOMERATES 1.1%
McDermott International, Inc.
(a) 124,000 2,001,360
-------------
INSURANCE 7.9%
Aspen Insurance Holdings,
Ltd. 88,971 2,097,936
Fidelity National Financial,
Inc. 110,000 1,994,300
Genworth Financial, Inc.
Class A 1,019,700 2,406,492
IPC Holdings, Ltd. 74,515 1,940,371
Old Republic International
Corp. 168,100 1,575,097
Phoenix Cos., Inc. (The) 939,327 1,465,350
Platinum Underwriters
Holdings, Ltd. 52,348 1,506,052
Protective Life Corp. 166,800 1,429,476
-------------
14,415,074
-------------
IT SERVICES 1.5%
Acxiom Corp. 279,187 2,694,154
-------------
MACHINERY 2.8%
Commercial Vehicle Group,
Inc. (a) 304,300 292,128
Kennametal, Inc. 109,200 2,233,140
Trinity Industries, Inc. 177,400 2,591,814
-------------
5,117,082
-------------
METALS & MINING 2.4%
Cliffs Natural Resources,
Inc. 89,000 2,052,340
Olympic Steel, Inc. 125,344 2,298,809
-------------
4,351,149
-------------
OIL, GAS & CONSUMABLE FUELS 5.1%
Brush Engineered Materials,
Inc. (a) 137,400 2,324,808
International Coal Group,
Inc. (a) 429,300 854,307
McMoRan Exploration Co. (a) 359,300 1,972,557
Stone Energy Corp. (a) 419,449 1,807,825
W&T Offshore, Inc. 249,500 2,315,360
-------------
9,274,857
-------------
PAPER & FOREST PRODUCTS 1.2%
Buckeye Technologies, Inc.
(a) 441,728 2,274,899
-------------
PHARMACEUTICALS 5.2%
Flamel Technologies S.A. ADR
(a)(b) 71,300 420,670
V Impax Laboratories, Inc.
(a) 755,200 3,995,008
Medicines Co. (The) (a) 91,000 908,180
Par Pharmaceutical Cos., Inc.
(a) 168,600 1,809,078
Sepracor, Inc. (a) 171,200 2,432,752
-------------
9,565,688
-------------
PROFESSIONAL SERVICES 1.6%
V CDI Corp. 240,681 2,876,138
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 6.3%
Advanced Analogic
Technologies, Inc. (a) 156,300 750,240
FormFactor, Inc. (a) 155,000 2,701,650
Lattice Semiconductor Corp.
(a) 1,334,900 2,322,726
MKS Instruments, Inc. (a) 118,000 1,846,700
V Teradyne, Inc. (a) 650,900 3,866,346
-------------
11,487,662
-------------
SPECIALTY RETAIL 6.9%
AnnTaylor Stores Corp. (a) 269,000 1,987,910
Chico's FAS, Inc. (a) 280,000 2,139,200
Childrens Place Retail
Stores, Inc. (The) (a) 54,000 1,535,760
Christopher & Banks Corp. 217,500 1,209,300
Collective Brands, Inc. (a) 157,000 2,279,640
Foot Locker, Inc. 208,400 2,477,876
Pacific Sunwear of
California, Inc. (a) 245,300 993,465
-------------
12,623,151
-------------
TEXTILES, APPAREL & LUXURY GOODS 1.0%
Skechers U.S.A., Inc. Class A
(a) 160,000 1,872,000
-------------
THRIFTS & MORTGAGE FINANCE 2.9%
Bank Mutual Corp. 208,893 2,145,331
Brookline Bancorp, Inc. 238,300 2,363,936
Radian Group, Inc. 479,700 829,881
-------------
5,339,148
-------------
TRADING COMPANIES & DISTRIBUTORS 1.4%
United Rentals, Inc. (a) 426,200 2,582,772
-------------
Total Common Stocks
(Cost $170,782,433) 177,034,332
-------------
<Caption>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENT 2.2%
- -------------------------------------------------------------
REPURCHASE AGREEMENT 2.2%
State Street Bank and Trust
Co.
0.05%, dated 4/30/09
due 5/1/09
Proceeds at Maturity
$3,998,331 (Collateralized
by a United States Treasury
Bill with a rate of 0.12%
and a maturity date of
7/30/09, with a Principal
Amount of $4,080,000 and a
Market Value of $4,078,776) $3,998,326 3,998,326
-------------
Total Short-Term Investment
(Cost $3,998,326) 3,998,326
-------------
Total Investments
(Cost $174,780,759) (c) 98.9% 181,032,658
Cash and Other Assets,
Less Liabilities 1.1 2,058,463
----- ------------
-------------
Net Assets 100.0% $ 183,091,121
===== ============
</Table>
12 MainStay Small Company Value Fund The notes to the financial statements
are an integral part of, and should be read in conjunction with, the financial
statements.
<Table>
(a) Non-income producing security.
(b) ADR--American Depositary Receipt.
(c) At April 30, 2009, cost is $179,248,964
for federal income tax purposes and net
unrealized appreciation is as follows:
</Table>
<Table>
Gross unrealized appreciation $ 23,363,083
Gross unrealized depreciation (21,579,389)
------------
Net unrealized appreciation $ 1,783,694
============
</Table>
The following is a summary of the inputs used as of April 30, 2009 in valuing
the Fund's assets carried at fair value:
<Table>
<Caption>
INVESTMENTS IN
VALUATION INPUTS SECURITIES
Level 1--Quoted Prices $177,034,332
Level 2--Other Significant
Observable Inputs 3,998,326
Level 3--Significant Unobservable
Inputs --
------------
Total $181,032,658
============
</Table>
The Fund did not hold other financial instruments as of April 30, 2009.
At April 30, 2009, the Fund did not hold any investments with significant
unobservable inputs (Level 3).
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
13
STATEMENT OF ASSETS AND LIABILITIES AS OF APRIL 30, 2008 UNAUDITED
<Table>
ASSETS:
Investment in securities, at value
(identified cost $174,780,759) $ 181,032,658
Receivables:
Investment securities sold 4,132,826
Fund shares sold 392,865
Dividends and interest 89,820
Shareholder communication 40,045
Other assets 52,515
-------------
Total assets 185,740,729
-------------
LIABILITIES:
Payables:
Investment securities purchased 1,789,846
Transfer agent (See Note 3) 486,789
Fund shares redeemed 182,003
Manager (See Note 3) 70,337
Custodian 53,837
NYLIFE Distributors (See Note 3) 41,093
Professional fees 19,535
Trustees 4,892
Accrued expenses 1,276
-------------
Total liabilities 2,649,608
-------------
Net assets $ 183,091,121
=============
COMPOSITION OF NET ASSETS:
Share of beneficial interest
outstanding
(par value of $.01 per share)
unlimited number of shares
authorized $ 192,895
Additional paid-in capital 482,345,085
-------------
482,537,980
Accumulated undistributed net
investment income 85,388
Accumulated net realized loss on
investments and futures
transactions (305,784,146)
Net unrealized appreciation on
investments 6,251,899
-------------
Net assets $ 183,091,121
=============
INVESTOR CLASS
Net assets applicable to
outstanding shares $ 21,370,694
=============
Shares of beneficial interest
outstanding 2,246,204
=============
Net asset value per share
outstanding $ 9.51
Maximum sales charge (5.50% of
offering price) 0.55
-------------
Maximum offering price per share
outstanding $ 10.06
=============
CLASS A
Net assets applicable to
outstanding shares $ 53,823,235
=============
Shares of beneficial interest
outstanding 5,665,562
=============
Net asset value per share
outstanding $ 9.50
Maximum sales charge (5.50% of
offering price) 0.55
-------------
Maximum offering price per share
outstanding $ 10.05
=============
CLASS B
Net assets applicable to
outstanding shares $ 20,031,133
=============
Shares of beneficial interest
outstanding 2,185,725
=============
Net asset value and offering price
per share outstanding $ 9.16
=============
CLASS C
Net assets applicable to
outstanding shares $ 14,303,862
=============
Shares of beneficial interest
outstanding 1,561,750
=============
Net asset value and offering price
per share outstanding $ 9.16
=============
CLASS I
Net assets applicable to
outstanding shares $ 73,562,197
=============
Shares of beneficial interest
outstanding 7,630,272
=============
Net asset value and offering price
per share outstanding $ 9.64
=============
</Table>
14 MainStay Small Company Value Fund The notes to the financial statements
are an integral part of, and should be read in conjunction with, the financial
statements.
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 2009 UNAUDITED
<Table>
INVESTMENT INCOME:
INCOME:
Dividends (a) $ 1,813,102
Interest 791
-------------
Total income 1,813,893
-------------
EXPENSES:
Manager (See Note 3) 768,735
Transfer agent--Investor Class
(See Note 3) 39,908
Transfer agent--Class A (See Note
3) 195,548
Transfer agent--Classes B and C
(See Note 3) 85,538
Transfer agent--Class I (See Note
3) 345,195
Distribution/Service--Investor
Class
(See Note 3) 15,909
Distribution/Service--Class A
(See Note 3) 57,443
Service--Class B (See Note 3) 16,964
Service--Class C (See Note 3) 15,141
Distribution--Class B (See Note
3) 50,892
Distribution--Class C (See Note
3) 45,422
Shareholder communication 57,074
Registration 47,406
Custodian 36,768
Professional fees 34,165
Trustees 5,209
Miscellaneous 15,751
-------------
Total expenses before waiver 1,833,068
Expense waiver from Manager (See
Note 3) (594,674)
-------------
Net expenses 1,238,394
-------------
Net investment income 575,499
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on:
Security transactions (105,799,283)
Futures transactions (9,114)
-------------
Net realized loss on investments
and futures transactions (105,808,397)
-------------
Net change in unrealized
appreciation (depreciation) on:
Security transactions 94,953,275
Futures contracts (567,308)
-------------
Net change in unrealized
depreciation on investments and
futures contracts 94,385,967
-------------
Net realized and unrealized loss on
investments and futures
transactions (11,422,430)
-------------
Net decrease in net assets
resulting from operations $ (10,846,931)
=============
</Table>
(a) Dividends recorded net of foreign withholding taxes in the amount of $3,488.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
15
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 2009 UNAUDITED AND THE YEAR ENDED OCTOBER 31,
2008
<Table>
<Caption>
2009 2008
DECREASE IN NET ASSETS:
Operations:
Net investment income $ 575,499 $ 7,310,737
Net realized loss on
investments and futures
transactions (105,808,397) (190,766,652)
Net change in unrealized
depreciation on
investments and futures
contracts 94,385,967 (55,255,316)
------------------------------
Net decrease in net assets
resulting from operations (10,846,931) (238,711,231)
------------------------------
Dividends and distributions to
shareholders:
From net investment income:
Investor Class (250,167) --
Class A (1,268,569) (1,870,802)
Class B (177,120) --
Class C (205,306) --
Class I (3,284,545) (7,498,289)
------------------------------
(5,185,707) (9,369,091)
------------------------------
From net realized gain on investments:
Class A -- (28,928,748)
Class B -- (3,462,812)
Class C -- (5,460,212)
Class I -- (57,146,695)
------------------------------
-- (94,998,467)
------------------------------
Total dividends and
distributions to
shareholders (5,185,707) (104,367,558)
------------------------------
Capital share transactions:
Net proceeds from sale of
shares 20,258,707 135,834,496
Net asset value of shares
issued in connection with
the acquisition of
MainStay Small Cap Value
Fund 28,616,643 --
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions 4,832,565 93,050,364
Cost of shares redeemed (75,408,811) (683,885,456)
------------------------------
Decrease in net assets
derived from capital
share transactions (21,700,896) (455,000,596)
------------------------------
Net decrease in net
assets (37,733,534) (798,079,385)
NET ASSETS:
Beginning of period 220,824,655 1,018,904,040
------------------------------
End of period $ 183,091,121 $ 220,824,655
==============================
Accumulated undistributed
net investment income at
end of period $ 85,388 $ 4,695,596
==============================
</Table>
16 MainStay Small Company Value Fund The notes to the financial statements
are an integral part of, and should be read in conjunction with, the financial
statements.
This page intentionally left blank
mainstayinvestments.com 17
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
INVESTOR CLASS
--------------------------------
FEBRUARY 28,
SIX MONTHS 2008**
ENDED THROUGH
APRIL 30, OCTOBER 31,
--------------------------------
2009* 2008
Net asset value at beginning of
period $ 10.14 $ 13.86
------- -------
Net investment income (loss)
(a) 0.01 0.10
Net realized and unrealized
gain (loss) on investments (0.42) (3.82)
------- -------
Total from investment
operations (0.41) (3.72)
------- -------
Less dividends and
distributions:
From net investment income (0.22) --
From net realized gain on
investments -- --
------- -------
Total dividends and
distributions (0.22) --
------- -------
Net asset value at end of
period $ 9.51 $ 10.14
======= =======
Total investment return (b) (3.60%)(c) (26.91%)(c)
Ratios (to average net
assets)/Supplemental Data:
Net investment income (loss) 0.25% ++ 1.10% ++
Net expenses 1.71% ++ 1.80% ++
Expenses (before waiver) 2.04% ++ 1.83% ++
Portfolio turnover rate 101% 158%
Net assets at end of period (in
000's) $21,371 $11,480
</Table>
<Table>
<Caption>
CLASS B
------------------------------------------------------------------
JANUARY 2,
SIX MONTHS 2004**
ENDED THROUGH
APRIL 30, YEAR ENDED OCTOBER 31, OCTOBER 31,
------------------------------------------------------------------
2009* 2008 2007 2006 2005 2004
Net asset value at beginning
of period $ 9.70 $ 17.94 $ 19.25 $ 19.18 $ 18.38 $ 16.71
------- ------- ------- ------- ------- -------
Net investment income (loss)
(a) (0.01) 0.06 (0.08) (0.21) (0.22) (0.19)
Net realized and unrealized
gain (loss) on investments (0.40) (6.29) (1.23) 2.08 3.93 1.86
------- ------- ------- ------- ------- -------
Total from investment
operations (0.41) (6.23) (1.31) 1.87 3.71 1.67
------- ------- ------- ------- ------- -------
Less dividends and
distributions:
From net investment income (0.13) -- -- -- -- --
From net realized gain on
investments -- (2.01) -- (1.80) (2.91) --
------- ------- ------- ------- ------- -------
Total dividends and
distributions (0.13) (2.01) -- (1.80) (2.91) --
------- ------- ------- ------- ------- -------
Net asset value at end of
period $ 9.16 $ 9.70 $ 17.94 $ 19.25 $ 19.18 $ 18.38
======= ======= ======= ======= ======= =======
Total investment return (b) (3.98%)(c) (38.56%) (6.81%) 10.32% 21.59% 9.99% (c)
Ratios (to average net
assets)/Supplemental Data:
Net investment income (loss) (0.38%)++ 0.47% (0.41%) (1.12%) (1.19%) (1.12%)++
Net expenses 2.39% ++ 2.44% 2.41% 2.39% 2.41% 2.62% ++#
Expenses (before waiver) 2.81% ++ 2.66% 2.41% 2.39% 2.41% 2.62% ++#
Portfolio turnover rate 101% 158% 134% 124% 159% 132%
Net assets at end of period
(in 000's) $20,031 $13,305 $32,502 $46,112 $48,496 $14,905
</Table>
<Table>
* Unaudited.
** Commencement of operations.
++ Annualized.
# Includes transfer agent fees paid directly which amounted to 0.02% of average
net assets for the year or period ended October 31, 2004 and custodian fees
and other expenses paid indirectly which amounted to less than 0.01% of
average net assets for the period indicated.
(a) Per share data based on average shares outstanding during the period.
(b) Total return is calculated exclusive of sales charge and assumes the
reinvestment of dividends and distributions. Class I shares are not subject to
sales charges.
(c) Total return is not annualized.
</Table>
18 MainStay Small Company Value Fund The notes to the financial statements
are an integral part of, and should be read in conjunction with, the financial
statements.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A
------------------------------------------------------------------------------------------------------
JANUARY 2,
SIX MONTHS 2004**
ENDED THROUGH
APRIL 30, YEAR ENDED OCTOBER 31, OCTOBER 31,
------------------------------------------------------------------------------------------------------
2009* 2008 2007 2006 2005 2004
$ 10.14 $ 18.65 $ 19.87 $ 19.60 $ 18.58 $ 16.78
------- ------- -------- -------- -------- -------
0.03 0.17 0.07 (0.07) (0.08) (0.09)
(0.43) (6.55) (1.29) 2.14 4.01 1.89
------- ------- -------- -------- -------- -------
(0.40) (6.38) (1.22) 2.07 3.93 1.80
------- ------- -------- -------- -------- -------
(0.24) (0.12) -- -- -- --
-- (2.01) -- (1.80) (2.91) --
------- ------- -------- -------- -------- -------
(0.24) (2.13) -- (1.80) (2.91) --
------- ------- -------- -------- -------- -------
$ 9.50 $ 10.14 $ 18.65 $ 19.87 $ 19.60 $ 18.58
======= ======= ======== ======== ======== =======
(3.52%)(c) (38.10%) (6.09%) 11.20% 22.66% 10.73% (c)
0.62% ++ 1.24% 0.33% (0.39%) (0.44%) (0.36%)++
1.54% ++ 1.65% 1.66% 1.64% 1.66% 1.87% ++#
2.28% ++ 1.84% 1.66% 1.64% 1.66% 1.87% ++#
101% 158% 134% 124% 159% 132%
$53,823 $64,527 $301,031 $502,182 $194,615 $24,621
</Table>
<Table>
<Caption>
CLASS C
----------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------------------------------
2009* 2008 2007 2006 2005 2004
$ 9.70 $ 17.94 $ 19.26 $ 19.19 $ 18.37 $16.15
------- ------- ------- -------- ------- ------
(0.01) 0.06 (0.09) (0.21) (0.22) (0.25)
(0.39) (6.29) (1.23) 2.08 3.95 3.28
------- ------- ------- -------- ------- ------
(0.40) (6.23) (1.32) 1.87 3.73 3.03
------- ------- ------- -------- ------- ------
(0.14) -- -- -- -- --
-- (2.01) -- (1.80) (2.91) (0.81)
------- ------- ------- -------- ------- ------
(0.14) (2.01) -- (1.80) (2.91) (0.81)
------- ------- ------- -------- ------- ------
$ 9.16 $ 9.70 $ 17.94 $ 19.26 $ 19.19 $18.37
======= ======= ======= ======== ======= ======
(3.90%)(c) (38.60%) (6.80%) 10.32% 21.72% 19.29%
(0.21%)++ 0.45% (0.44%) (1.14%) (1.19%) (1.13%)
2.39% ++ 2.45% 2.41% 2.39% 2.41% 2.62% #
2.87% ++ 2.67% 2.41% 2.39% 2.41% 2.62% #
101% 158% 134% 124% 159% 132%
$14,304 $15,123 $54,264 $120,414 $48,316 $5,518
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
19
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS I
----------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------
2009* 2008 2007 2006 2005 2004
Net asset value at beginning
of period $ 10.34 $ 19.03 $ 20.18 $ 19.79 $ 18.67 $ 16.26
------- -------- -------- -------- -------- --------
Net investment income (a) 0.05 0.24 0.17 0.02 0.01 0.06
Net realized and unrealized
gain (loss) on investments (0.44) (6.69) (1.32) 2.17 4.02 3.21
------- -------- -------- -------- -------- --------
Total from investment
operations (0.39) (6.45) (1.15) 2.19 4.03 3.27
------- -------- -------- -------- -------- --------
Less dividends and
distributions:
From net investment income (0.31) (0.23) (0.00)++ -- -- (0.05)
From net realized gain on
investments -- (2.01) -- (1.80) (2.91) (0.81)
------- -------- -------- -------- -------- --------
Total dividends and
distributions (0.31) (2.24) (0.00)++ (1.80) (2.91) (0.86)
------- -------- -------- -------- -------- --------
Net asset value at end of
period $ 9.64 $ 10.34 $ 19.03 $ 20.18 $ 19.79 $ 18.67
======= ======== ======== ======== ======== ========
Total investment return (b) (3.32%)(c) (37.81%) (5.69%) 11.73% 23.15% 20.72%
Ratios (to average net
assets)/Supplemental Data:
Net investment income 1.15% ++ 1.69% 0.81% 0.09% 0.06% 0.32%
Net expenses 1.18% ++ 1.20% 1.19% 1.17% 1.16% 1.18%#
Expenses (before waiver) 2.06% ++ 1.48% 1.35% 1.17% 1.16% 1.18%#
Portfolio turnover rate 101% 158% 134% 124% 159% 132%
Net assets at end of period
(in 000's) $73,562 $116,390 $631,108 $862,439 $317,602 $194,476
</Table>
<Table>
* Unaudited.
++ Annualized.
++ Less than one cent per share.
# Includes transfer agent fees paid directly which amounted to 0.02% of average
net assets for the year or period ended October 31, 2004 and custodian fees
and other expenses paid indirectly which amounted to less than 0.01% of
average net assets for the period indicated.
(a) Per share data based on average shares outstanding during the period.
(b) Total return is calculated exclusive of sales charge and assumes the
reinvestment of dividends and distributions. Class I shares are not subject to
sales charges.
(c) Total return is not annualized.
</Table>
20 MainStay Small Company Value Fund The notes to the financial statements
are an integral part of, and should be read in conjunction with, the financial
statements.
NOTES TO FINANCIAL STATEMENTS UNAUDITED
NOTE 1--ORGANIZATION AND BUSINESS:
Eclipse Funds (the "Trust") was organized on July 30, 1986, as a Massachusetts
business trust. The Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company,
and is comprised of three funds (collectively referred to as the "Funds"). These
financial statements and notes relate only to the MainStay Small Company Value
Fund (the "Fund"), a diversified fund. Effective January 30, 2009, the Fund
changed its principal investment strategy, investment process and principal
risks. Effective February 13, 2009, the Fund changed its name from MainStay
Small Cap Opportunity Fund, a diversified fund.
The Fund currently offers five classes of shares. Class I shares commenced
operations on January 12, 1987. Class A shares and Class B shares commenced
operations on January 2, 2004. Class C shares commenced operations on December
30, 2002. Investor Class shares commenced operations on February 28, 2008.
Investor Class and Class A shares are offered at net asset value ("NAV") per
share plus an initial sales charge. No sales charge applies on investments of $1
million or more (and certain other qualified purchases) in Investor Class and
Class A shares, but a contingent deferred sales charge is imposed on certain
redemptions of such shares within one year of the date of purchase. Class B
shares and Class C shares are offered without an initial sales charge, although
a declining contingent deferred sales charge may be imposed on redemptions made
within six years of purchase of Class B shares and a 1.00% contingent deferred
sales charge may be imposed on redemptions made within one year of purchase of
Class C shares. Class I shares are not subject to a sales charge. Depending upon
eligibility, Class B shares convert to either Investor Class or Class A shares
eight years after the date they were purchased. Additionally, depending upon
eligibility, Investor Class shares may convert to Class A shares and Class A
shares may convert to Investor Class shares. The five classes of shares have the
same voting (except for issues that relate solely to one class), dividend,
liquidation and other rights, and bear the same conditions except that Class B
and Class C shares are subject to higher distribution and service fee rates than
Investor Class and Class A shares under a distribution plan pursuant to Rule
12b-1 under the 1940 Act. Class I shares are not subject to a distribution or
service fee.
The Fund's investment objective is to seek long-term capital appreciation by
investing primarily in securities of small-cap companies.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The Fund prepares its financial statements in accordance with accounting
principles generally accepted in the United States of America and follows the
significant accounting policies described below.
(A) SECURITIES VALUATION. Equity securities are valued at the latest quoted
sales prices as of the close of trading on the New York Stock Exchange
(generally 4:00 p.m. Eastern time) on each day the Fund is open for business
("valuation date"). Securities that are not traded on the valuation date are
valued at the mean of the latest quoted bid and asked prices. Prices normally
are taken from the principal market in which each security trades. Futures
contracts are valued at the last posted settlement price on the market where
such futures are primarily traded. Investments in other mutual funds are valued
at their NAVs as of the close of the New York Stock Exchange on the date of
valuation.
Temporary cash investments acquired over 60 days prior to maturity are valued
using the latest bid prices or using valuations based on a matrix system (which
considers such factors as security prices, yields, maturities, and ratings),
both as furnished by independent pricing services. Other temporary cash
investments which mature in 60 days or less are valued at amortized cost. The
amortized cost method involves valuing a security at its cost on the date of
purchase and thereafter assuming a constant amortization to maturity of the
difference between the principal amount due at maturity and cost.
Securities for which market quotations are not readily available are valued by
methods deemed in good faith by the Fund's Board of Trustees to represent fair
value. Equity and non-equity securities which may be valued in this manner
include, but are not limited to: (i) a security the trading for which has been
halted or suspended; (ii) a debt security that has recently gone into default
and for which there is not a current market quotation; (iii) a security of an
issuer that has entered into a restructuring; (iv) a security that has been de-
listed from a national exchange; (v) a security the market price of which is not
available from an independent pricing source or, if so provided, does not, in
the opinion of the Fund's Manager or Subadvisor, as defined in Note 3(A),
reflect the security's market value; and (vi) a security where the trading on
that security's principal market is temporarily closed at a time when, under
normal conditions, it would be open. At April 30, 2009, the Fund did not hold
securities that were valued in such a manner.
The Fund adopted Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"),
effective for the fiscal year beginning November 1, 2008. In accordance with
SFAS 157, fair value is defined as the price that the Fund would receive upon
selling an investment in an orderly transaction to an independent buyer in the
principal or most advantageous market of the investment. SFAS 157 established a
three-tier hierarchy which maximizes the use of observable market data and
minimizes the use of unobservable inputs to establish classification of fair
value measurements for disclosure purposes. Inputs refer broadly to
mainstayinvestments.com 21
NOTES TO FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
the assumptions that market participants would use in pricing the asset or
liability, including assumptions about risk, such as, the risk inherent in a
particular valuation technique used to measure fair value, including such a
pricing model and/or the risk inherent in the inputs to the valuation technique.
Inputs may be observable or unobservable. Observable inputs are inputs that
reflect the assumptions market participants would use in pricing the asset or
liability developed based on market data obtained from sources independent of
the reporting entity. Unobservable inputs are inputs that reflect the reporting
entity's own assumptions about the assumptions market participants would use in
pricing the asset or liability developed based on the information available in
the circumstances. The inputs or methodology used for valuing securities may not
be an indication of the risks associated with investing in those securities. The
three-tier hierarchy of inputs is summarized in the three broad Levels listed
below.
- - Level 1--quoted prices in active markets for identical investments
- - Level 2--other significant observable inputs (including quoted prices for
similar investments in active markets, interest rates and yield curves,
prepayment speeds, credit risks, etc.)
- - Level 3--significant unobservable inputs (including the Fund's own assumptions
about the assumptions that market participants would use in determining the
fair value of investments)
The aggregate value by input level, as of April 30, 2009, for the Fund's
investments is included at the end of the Fund's Portfolio of Investments.
The valuation techniques used by the Fund to measure fair value during the six-
month period ended April 30, 2009, maximized the use of observable inputs and
minimized the use of unobservable inputs. The Fund utilized the following fair
value techniques: multi-dimensional relational pricing models, option adjusted
spread pricing and estimating the price that would have prevailed in a liquid
market for an international equity security given information available at the
time of evaluation, when there are significant events after the close of local
foreign markets.
In April 2009, FASB issued FASB Staff Position No. 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" ("FSP
157-4"). FSP 157-4 provides additional guidance for estimating fair value in
accordance with FASB SFAS 157, when the volume and level of activity for the
asset or liability have significantly decreased as well as guidance on
identifying circumstances that indicate a transaction is not orderly. FSP 157-4
is effective for fiscal years and interim periods ending after June 15, 2009.
Management is currently evaluating the impact the adoption of FSP 157-4 will
have on the Fund's financial statement disclosures.
(B) FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute all of the taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no federal income tax provision is required.
In July 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes," ("FIN 48")
an interpretation of FASB Statement No. 109 (the "Interpretation"). The
Interpretation established for all entities, including pass-through entities
such as the Fund, a minimum threshold for financial statement recognition of the
benefit of positions taken in filing tax returns (including whether an entity is
taxable in a particular jurisdiction), and requires certain expanded tax
disclosures. The Fund has not recorded any tax liabilities pursuant to FIN 48.
Each of the Fund's tax returns for the prior three years remains subject to
examination by the Internal Revenue Service and state tax authorities. The
Manager, as defined in Note 3(A), determined that the adoption of the
Interpretation did not have an impact on the Fund's financial statements upon
adoption. The Manager continually reviews the Fund's tax positions and such
conclusions under the Interpretation based on factors, including, but not
limited to, ongoing analyses of tax laws and regulations and interpretations
thereof.
(C) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions
are recorded on the ex-dividend date. The Fund intends to declare and pay
dividends of net investment income and distributions of net realized capital and
currency gains, if any, annually. All dividends and distributions are reinvested
in shares of the Fund, at NAV, unless the shareholder elects otherwise.
Dividends and distributions to shareholders are determined in accordance with
federal income tax regulations and may differ from generally accepted accounting
principles in the United States of America.
(D) SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued as earned
using the effective interest rate method. Discounts and premiums on short-term
securities are accreted and amortized, respectively, on the straight-line
method.
Investment income and realized and unrealized gains and losses on investments of
the Fund are allocated to separate classes of shares pro rata based upon their
relative net assets on the date the income is earned or realized and unrealized
gains and losses are incurred.
22 MainStay Small Company Value Fund
(E) EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred, except where direct allocations of expenses can be made. Expenses
(other than transfer agent expenses and fees incurred under the shareholder
services plans and the distribution plans further discussed in Note 3(B)) are
allocated to separate classes of shares pro rata based upon their relative net
asset value on the date the expenses are incurred. The expenses borne by the
Fund, including those of related parties to the Fund, are shown in the Statement
of Operations.
(F) USE OF ESTIMATES. In preparing financial statements in conformity with
accounting principles generally accepted in the United States of America,
management makes estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
(G) REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements to
earn income. The Fund may enter into repurchase agreements only with financial
institutions that are deemed by the Manager or Subadvisor, if any, to be
creditworthy, pursuant to guidelines established by the Fund's Board of
Trustees. Repurchase agreements are considered under the Investment Company Act
to be collateralized loans by a Fund to the seller secured by the securities
transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund's custodian takes
possession of the collateral pledged for investments in such repurchase
agreements. The underlying collateral is valued daily on a mark-to-market basis
to determine that the value, including accrued interest, exceeds the repurchase
price. In the event of the seller's default of the obligation to repurchase, the
Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
(H) FUTURES CONTRACTS. A futures contract is an agreement to purchase or sell a
specified quantity of an underlying instrument at a specified future date and
price, or to make or receive a cash payment based on the value of a securities
index. During the period the futures contract is open, changes in the value of
the contract are recognized as unrealized gains or losses by "marking-to-market"
such contract on a daily basis to reflect the market value of the contract at
the end of each day's trading. The Fund agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments are known as "variation margin." When the
futures contract is closed, the Fund records a realized gain or loss equal to
the difference between the proceeds from (or cost of) the closing transaction
and the Fund's basis in the contract. The Fund invests in stock index futures
contracts to gain full exposure to changes in stock market prices to fulfill its
investment objectives. The Fund's investment in futures contracts and other
derivatives may increase the volatility of the Fund's net asset value and may
result in a loss to the Fund.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the Statement of Assets and
Liabilities. The contract or notional amounts and variation margin reflect the
extent of the Fund's involvement in open futures positions. Risks arise from the
possible imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets, and the possible inability of
counterparties to meet the terms of their contracts. However, the Fund's
activities in futures contracts are conducted through regulated exchanges which
minimize counterparty credit risks.
(I) SECURITIES LENDING. In order to realize additional income, the Fund may
engage in securities lending, subject to the limitations set forth in the
Investment Company Act of 1940. In the event the Fund does engage in securities
lending, the Fund will lend through its custodian, State Street Bank and Trust
Company ("State Street"). State Street manages the Fund's cash collateral in
accordance with the Lending Agreement between the Fund and State Street, and
indemnifies the Fund's portfolio against counterparty risk. The loans are
collateralized by cash or securities at least equal at all times to the market
value of the securities loaned. Collateral will consist of U.S. Government
securities, cash equivalents or irrevocable letters of credit. The Fund may bear
the risk of delay in recovery of, or loss of rights in, the securities loaned
should the borrower of the securities experience financial difficulty. The Fund
may also record realized gain or loss on securities deemed sold due to
borrower's inability to return securities on loan. The Fund receives
compensation for lending its securities in the form of fees or it retains a
portion of interest on the investment of any cash received as collateral. The
Fund also continues to receive interest and dividends on the securities loaned
and any gain or loss in the market price of the securities loaned that may occur
during the term of the loan will be for the account of the Fund.
In light of current market conditions, the Fund's Board of Trustees and New York
Life Investments, as defined in Note 3(A), have determined that it is in the
best interest of the Fund to temporarily stop lending portfolio securities, and
to recall all outstanding loans. As a result, on September 18, 2008, the Fund
temporarily suspended its participation in the securities lending program and
initiated a recall of all securities out on loan. All loaned securities have
since been recalled. The Fund and New York Life Investments reserve the right to
reinstitute lending when deemed appropriate.
mainstayinvestments.com 23
NOTES TO FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
(J) INDEMNIFICATIONS. Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities that may arise out of
performance of their duties to the Trust. Additionally, in the normal course of
business, the Fund enters into contracts with third-party service providers that
contain a variety of representations and warranties and which provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the Fund
that have not yet occurred. Based on experience, management is of the view that
the risk of loss in connection with these potential indemnification obligations
is remote. However, there can be no assurance that material liabilities related
to such obligations will not arise in the future, which could adversely impact
the Fund.
NOTE 3--FEES AND RELATED PARTY TRANSACTIONS:
(A) MANAGER AND SUBADVISOR. New York Life Investment Management LLC ("New York
Life Investments" or "Manager"), a registered investment adviser and an
indirect, wholly-owned subsidiary of New York Life Insurance Company ("New York
Life"), serves as the Fund's Manager, pursuant to an Amended and Restated
Management Agreement ("Management Agreement"). The Manager provides offices,
conducts clerical, recordkeeping and bookkeeping services, and keeps most of the
financial and accounting records required to be maintained by the Fund. The
Manager also pays the salaries and expenses of all personnel affiliated with the
Fund and all the operational expenses that are not the responsibility of the
Fund. MacKay Shields LLC (the "Subadvisor"), a registered investment adviser and
an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to
the Fund and is responsible for the day-to-day portfolio management of the Fund.
Pursuant to the terms of an Amended and Restated Subadvisory Agreement
("Subadvisory Agreement") between New York Life Investments and the Subadvisor,
New York Life Investments pays for the services of the Subadvisor.
The Fund pays the Manager a monthly fee for services performed and facilities
furnished at an annual rate of the Fund's average daily net assets as follows:
0.85% on assets up to $1 billion and 0.80% on assets in excess of $1 billion.
Effective February 13, 2009, New York Life Investments has entered into a
written expense limitation agreement under which it has agreed to waive a
portion of the Fund's management fee or reimburse the expenses of the
appropriate class of the Fund so that the total ordinary operating expenses of a
class (total ordinary operating expenses excludes taxes, interest, litigation,
extraordinary expenses, brokerage and other transaction expenses relating to the
purchase or sale of portfolio investments and the fees and expenses of any other
funds in which the Fund invests) do not exceed the following percentages of
average daily net assets: Investor Class, 1.63%; Class A, 1.53%; Class B, 2.38%;
Class C, 2.38%; and Class I, 1.17%. These expense limitations may be modified or
terminated only with the approval of the Board of Trustees. New York Life
Investments may recoup the amount of certain management fee waivers or expense
reimbursements from the Fund pursuant to the agreement if such action does not
cause the Fund to exceed the existing expense limitations and the recoupment is
made within three years after the year in which New York Life Investments
incurred the expense.
Between May 1, 2008 and February 13, 2009, New York Life Investments had a
written expense limitation agreement that set expense limitations at: Investor
Class, 1.80%, Class A, 1.55%; Class B, 2.40%; Class C, 2.40%; and Class I,
1.19%.
Between April 1, 2008 and May 1, 2008, New York Life Investments had a written
expense limitation agreement that set expense limitations at: Investor Class,
1.80%, Class A, 1.70%; Class B, 2.55%; Class C, 2.55%; and Class I, 1.19%. Prior
to April 1, 2008, New York Life Investments had a different expense limitation
agreement in place with respect to the Fund.
For the six-month period ended April 30, 2009, New York Life Investments earned
fees from the Fund in the amount of $768,735 and waived its fees in the amount
of $594,674.
As of April 30, 2009, the amounts of waived fees that are subject to possible
recoupment by the Manager, and the related expiration dates are as follows:
<Table>
<Caption>
OCTOBER 31,
2010 2011 2012 TOTAL
$1,305,029 $1,248,722 $594,674 $3,148,425
- ----------------------------------------------------------------------
</Table>
State Street Bank and Trust Company, 1 Lincoln Street, Boston, Massachusetts
02111, provides sub-administration and sub-accounting services to the Fund
pursuant to an agreement with New York Life Investments. These services include
calculating daily NAVs of the Fund, maintaining general ledger and sub-ledger
accounts for the calculation of the Fund's respective NAVs, and assisting New
York Life Investments in conducting various aspects of the Fund's administrative
operations. For providing these services to the Fund, State Street is
compensated by New York Life Investments.
(B) DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors LLC (the "Distributor"), an
indirect, wholly-owned subsidiary of New York Life. The Fund, with respect to
each class of shares, other than Class I shares, has adopted distribution plans
(the "Plans") in accordance with the provisions of Rule 12b-1 under the 1940
Act.
24 MainStay Small Company Value Fund
Pursuant to the Investor Class and Class A Plans, the Distributor receives a
monthly distribution fee from the Fund at an annual rate of 0.25% of the average
daily net assets of the Fund's Investor Class and Class A shares, which is an
expense of the Investor Class and Class A shares of the Fund for distribution or
service activities as designated by the Distributor. Pursuant to the Class B and
Class C Plans, the Fund pays the Distributor a monthly distribution fee, which
is an expense of the Class B and Class C shares of the Fund, at an annual rate
of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Plans provide that the Class B and Class C shares of the Fund also
incur a shareholder service fee at an annual rate of 0.25% of an average daily
net asset value of the Class B and Class C shares of the Fund. Class I shares
are not subject to a distribution or service fee.
The Plans provide that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
(C) SALES CHARGES. The Fund was advised by the Distributor that the amount of
sales charges retained on sales of Investor Class and Class A shares were $4,892
and $1,864, respectively for the six-month period ended April 30, 2009. The Fund
was also advised that the Distributor retained contingent deferred sales charges
on redemptions of Class A, Class B and Class C shares of $16, $14,401 and $304,
respectively, for the six-month period ended April 30, 2009.
(D) TRANSFER, DIVIDEND DISBURSING AND
SHAREHOLDER SERVICING AGENT. NYLIM Service Company LLC ("MainStay
Investments"), an affiliate of New York Life Investments, is the Fund's
transfer, dividend disbursing and shareholder servicing agent. MainStay
Investments has entered into an agreement with Boston Financial Data Services
pursuant to which it performs certain services for which MainStay Investments is
responsible. Transfer agent expenses incurred by the Fund for the six-month
period ended April 30, 2009, amounted to $666,189.
(E) SMALL ACCOUNT FEES. Shareholders with small accounts adversely impact the
cost of providing transfer agency services. In an effort to reduce total
transfer agency expenses, the Fund has implemented a small account fee on
certain types of accounts. Shareholders with an account balance of less than
$1,000 are charged an annual per account fee of $20 (assessed semi-annually).
These fees are included in transfer agent fees shown on the Statement of
Operations.
(F) CAPITAL. At April 30, 2009, New York Life and its affiliates held
beneficially shares of the Fund with the following values and percentages of net
assets as follows:
<Table>
Class A $ 1,055 0.0%++
- ---------------------------------------------------
Class B 811 0.0++
- ---------------------------------------------------
Class C 1,369 0.0++
- ---------------------------------------------------
Class I 27,613,762 37.5
- ---------------------------------------------------
</Table>
++ Less than one-tenth of a percent.
(G) OTHER. Pursuant to the Management Agreement, the cost of legal services
provided to the Fund by the Office of the General Counsel of New York Life
Investments is payable directly by the Fund. For the six-month period ended
April 30, 2009, these fees, which are included in professional fees shown on the
Statement of Operations, were $8,554.
NOTE 4--FEDERAL INCOME TAX:
At October 31, 2008, for federal income tax purposes, capital loss carryforwards
of $194,940,236 were available as shown in the table below, to the extent
provided by the regulations to offset future realized gains of the Fund through
the years indicated. To the extent that these loss carryforwards are used to
offset future capital gains, it is probable that the capital gains so offset
will not be distributed to shareholders.
<Table>
<Caption>
CAPITAL LOSS CAPITAL LOSS
AVAILABLE THROUGH AMOUNTS (000'S)
2016 $194,940
- ------------------------------------
</Table>
The tax character of distributions paid during the year ended October 31, 2008,
shown in the Statement of Changes in Net Assets, was as follows:
<Table>
<Caption>
2008
Distributions paid from:
Ordinary Income $ 19,289,432
Long-Term Capital Gains 85,078,126
- -------------------------------------------------
Total $104,367,558
- -------------------------------------------------
</Table>
NOTE 5--CUSTODIAN:
State Street is the custodian of cash and securities of the Fund. Custodial fees
are charged to the Fund based on the market value of securities in the Fund and
the number of certain cash transactions incurred by the Fund.
NOTE 6--LINE OF CREDIT:
The Fund, and certain affiliated funds, maintain a line of credit of
$160,000,000 with a syndicate of banks in order to secure a source of funds for
temporary purposes to meet unanticipated or excessive shareholder redemption
mainstayinvestments.com 25
NOTES TO FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
requests. Effective September 3, 2008, these Funds pay a commitment fee at an
annual rate of 0.08% of the average commitment amount, regardless of usage, to
The Bank of New York Mellon, which serves as agent to the syndicate. Such
commitment fees are allocated among the Funds based upon net assets and other
factors. Interest on any revolving credit loan is charged based upon the Federal
Funds Advances rate. There were no borrowings made or outstanding with respect
to the Fund on the line of credit during the six-month period ended April 30,
2009.
NOTE 7--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six-month period ended April 30, 2009, purchases and sales of
securities, other than short-term securities, were $170,458 and $227,540,
respectively.
NOTE 8--CAPITAL SHARE TRANSACTIONS:
<Table>
<Caption>
INVESTOR CLASS SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 305,683 $ 2,361,361
Shares issued in connection
with the acquisition of
MainStay Small Cap Value
Fund 915,198 7,435,417
Shares issued to
shareholders in
reinvestment of dividends 30,268 247,895
Shares redeemed (212,067) (1,644,432)
---------------------------
Net increase in shares
outstanding before
conversion 1,039,082 8,400,241
Shares converted into
Investor Class (See Note
1) 75,579 480,685
Shares converted from
Investor Class (See Note
1) (1,073) (9,304)
---------------------------
Net increase 1,113,588 $ 8,871,622
===========================
Period ended October 31,
2008 (a):
Shares sold 297,156 $ 4,040,651
Shares redeemed (246,008) (3,187,536)
---------------------------
Net increase in shares
outstanding before
conversion 51,148 853,115
Shares converted into
Investor Class (See Note
1) 1,181,962 15,686,288
Shares converted from
Investor Class (See Note
1) (100,494) (1,335,891)
---------------------------
Net increase 1,132,616 $ 15,203,512
===========================
(a) Investor Class shares were first offered on February
28, 2008.
<Caption>
CLASS A SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 791,210 $ 6,506,219
Shares issued in connection
with the acquisition of
MainStay Small Cap Value
Fund 1,320,954 10,706,373
Shares issued to
shareholders in
reinvestment of dividends 128,139 1,046,901
Shares redeemed (2,989,024) (25,294,145)
---------------------------
Net decrease in shares
outstanding before
conversion (748,721) (7,034,652)
Shares converted into Class
A (See Note 1) 49,142 349,532
---------------------------
Net decrease (699,579) $ (6,685,120)
===========================
Year ended October 31,
2008:
Shares sold 3,978,284 $ 56,156,683
Shares issued to
shareholders in
reinvestment of dividends
and distributions 1,664,669 25,644,532
Shares redeemed (14,436,478) (203,503,496)
---------------------------
Net decrease in shares
outstanding before
conversion (8,793,525) (121,702,281)
Shares converted into Class
A (See Note 1) 161,393 2,200,573
Shares converted from Class
A (See Note 1) (1,142,652) (15,144,175)
---------------------------
Net decrease (9,774,784) $(134,645,883)
===========================
<Caption>
CLASS B SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 102,968 $ 799,983
Shares issued in connection
with the acquisition of
MainStay Small Cap Value
Fund 1,067,325 8,360,201
Shares issued to
shareholders in
reinvestment of dividends 20,914 165,221
Shares redeemed (249,062) (1,863,298)
---------------------------
Net increase in shares
outstanding before
conversion 942,145 7,462,107
Shares converted from Class
B (See Note 1) (128,413) (820,913)
---------------------------
Net increase 813,732 $ 6,641,194
===========================
Year ended October 31,
2008:
Shares sold 164,553 $ 2,135,917
Shares issued to
shareholders in
reinvestment of
distributions 217,627 3,209,993
Shares redeemed (716,632) (9,649,628)
---------------------------
Net decrease in shares
outstanding before
conversion (334,452) (4,303,718)
Shares converted from Class
B (See Note 1) (105,204) (1,406,795)
---------------------------
Net decrease (439,656) $ (5,710,513)
===========================
</Table>
26 MainStay Small Company Value Fund
<Table>
<Caption>
CLASS C SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 43,481 $ 343,378
Shares issued in connection
with the acquisition of
MainStay Small Cap Value
Fund 269,350 2,108,989
Shares issued to
shareholders in
reinvestment of dividends 18,026 142,409
Shares redeemed (327,943) (2,540,208)
---------------------------
Net increase 2,914 $ 54,568
===========================
Year ended October 31,
2008:
Shares sold 175,386 $ 2,462,014
Shares issued to
shareholders in
reinvestment of
distributions 249,183 3,677,942
Shares redeemed (1,889,664) (25,824,537)
---------------------------
Net decrease (1,465,095) $ (19,684,581)
===========================
<Caption>
CLASS I SHARES AMOUNT
Six-month period ended April 30, 2009:
Shares sold 1,227,655 $ 10,247,766
Shares issued in connection
with the acquisition of
MainStay Small Cap Value 689 5,663
Shares issued to
shareholders in
reinvestment of dividends 390,113 3,230,139
Shares redeemed (5,241,650) (44,066,728)
---------------------------
Net decrease (3,623,193) $ (30,583,160)
===========================
Year ended October 31,
2008:
Shares sold 4,947,957 $ 71,039,231
Shares issued to
shareholders in
reinvestment of dividends
and distributions 3,845,657 60,517,897
Shares redeemed (30,698,488) (441,720,259)
---------------------------
Net decrease (21,904,874) $(310,163,131)
===========================
</Table>
NOTE 9--NEW ACCOUNTING PRONOUNCEMENTS:
In March 2008, FASB issued the Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS
161"). SFAS 161 is effective for fiscal years and interim periods beginning
after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's
derivative and hedging activities, including how such activities are accounted
for and their effect on the Fund's financial position, performance and cash
flows. Management is currently evaluating the impact the adoption of SFAS 161
will have on the Fund's financial statements and related disclosures.
NOTE 10--FUND ACQUISITION:
At a meeting held on September 25, 2008, the Board of Trustees approved a plan
of reorganization where the Fund would acquire the assets, including the
investments, and assume the identified liabilities of MainStay Small Cap Value
Fund, a series of The MainStay Funds. Shareholders of the MainStay Small Cap
Value Fund approved this reorganization on January 30, 2009, which was then
completed on February 13, 2009. The aggregate net assets of the Fund immediately
before the acquisition were $140,597,322 and the combined net assets after the
acquisition were $169,213,965.
The acquisition was accomplished by a tax-free exchange of the following:
<Table>
<Caption>
SHARES VALUE
MainStay Small Cap Value Fund
- ------------------------------------------------------
Investor Class 1,496,605 $ 7,435,417
- ------------------------------------------------------
Class A 2,157,866 10,706,373
- ------------------------------------------------------
Class B 1,870,948 8,360,201
- ------------------------------------------------------
Class C 471,745 2,108,989
- ------------------------------------------------------
Class I 1,129 5,663
- ------------------------------------------------------
</Table>
In exchange for the MainStay Small Cap Value Fund shares and net assets, the
Fund issued 915,198 Investor Class Shares; 1,320,954 Class A shares; 1,067,325
Class B shares; 269,350 Class C shares and 689 Class I shares.
MainStay Small Cap Value Fund's net assets after adjustments for any permanent
book-to-tax differences at the acquisition date were as follows, which include
the following amounts of capital stock, unrealized appreciation and accumulated
net realized loss:
<Table>
<Caption>
TOTAL UNREALIZED ACCUMULATED NET UNDISTRIBUTED NET
NET ASSETS CAPITAL STOCK DEPRECIATION REALIZED LOSS INVESTMENT INCOME
MainStay Small Cap Value Fund $28,616,643 $69,577,796 ($18,029,815) ($23,059,649) $128,311
- ------------------------------------------------------------------------------------------------------------------
</Table>
mainstayinvestments.com 27
BOARD CONSIDERATION AND APPROVAL OF NEW SUBADVISORY AGREEMENTS
BOARD CONSIDERATION OF NEW SUBADVISORY AGREEMENT WITH MADISON SQUARE INVESTORS
LLC
Section 15(c) of the Investment Company Act of 1940, as amended ("1940 Act")
requires that each mutual fund's board of trustees, including a majority of
trustees who are not "interested persons" of the fund, as defined in the 1940
Act ("Independent Trustees"), review and approve the fund's investment advisory
agreements. At its meeting on September 25, 2008, the Board of Trustees of
Eclipse Funds (the "Board" of the "Trust"), which was comprised solely of
Independent Trustees, unanimously approved a new subadvisory agreement (the
"Subadvisory Agreement") between New York Life Investment Management LLC ("New
York Life Investments"), manager of the Trust, and Madison Square Investors LLC
("Madison Square Investors") with respect to the MainStay Small Company Value
Fund (the "Fund"). Madison Square Investors is a new affiliate of New York Life
Investments formed to accommodate a lift-out of New York Life Investments'
Equity Investors Group ("EIG"), a division of New York Life Investments that
historically has provided investment advisory services to the Fund, effective
December 27, 2008 (the "Reorganization"). New York Life Investments advised the
Board that EIG would be better positioned in the institutional marketplace as a
separate investment boutique rather than as a division of New York Life
Investments. In considering the approval of the Subadvisory Agreement, the Board
was provided with information from New York Life Investments confirming that, in
connection with the Reorganization: (i) no material change in the nature or the
level of the services provided to the Fund would occur; (ii) no increase in the
investment advisory fees payable by the Fund would be implemented; (iii) no
material changes were expected in the personnel responsible for management of
the Fund; and (iv) existing shareholders would be notified of the
Reorganization. Furthermore, the Board considered an opinion from outside
counsel to New York Life Investments confirming that the Subadvisory Agreement
did not require shareholder approval.
In reaching its decision to approve the Subadvisory Agreement, the Board
considered a variety of information furnished to the Board from New York Life
Investments. The Board also requested and received responses from New York Life
Investments to a comprehensive list of questions encompassing a variety of
topics prepared on behalf of the Board by independent legal counsel to the
Board. The Board considered its historical experience with EIG's capabilities
and resources, and its evaluation of EIG in connection with previous contract
review processes, including contract review processes that culminated with
approval of the management agreement between the Trust, on behalf of the Fund,
and New York Life Investments in April 2008 and again in June 2008 (the "Prior
Contract Review Processes").
In determining to approve the new Subadvisory Agreement, the members of the
Board reviewed and evaluated all of this information and factors they believed
to be relevant and appropriate in light of legal advice furnished to them by
independent legal counsel and through the exercise of their own business
judgment. The broad factors considered by the Board are discussed in greater
detail below, and included, among other things: (i) the nature, extent, and
quality of the services to be provided to the Fund by Madison Square Investors;
(ii) the investment performance of the Fund and the historical investment
performance of similar funds managed by Madison Square Investors; (iii) the
costs of the services to be provided, and profits to be realized, by Madison
Square Investors from its relationship with the Fund; (iv) the extent to which
economies of scale may be realized as the Fund grows, and the extent to which
economies of scale may benefit the Fund's investors; and (v) the reasonableness
of the Fund's management and subadvisory fee levels and overall total ordinary
operating expenses.
While the members of the Board may have weighed certain factors differently, the
Board's decision to approve the Subadvisory Agreement was based on a
comprehensive consideration of all the information provided to the Board in
connection with its review of the Subadvisory Agreement. A more detailed
discussion of the factors that figured prominently in the Board's decision to
approve the Subadvisory Agreement is provided below.
NATURE, EXTENT, AND QUALITY OF SERVICES TO BE PROVIDED
In considering the approval of the Subadvisory Agreement, the Board examined the
nature, extent and quality of the services that EIG historically had provided to
the Fund, and that Madison Square Investors would provide to the Fund. Based on
information provided to the Board in connection with the Prior Contract Review
Processes, the Board acknowledged EIG's historical service to the Fund, and took
note of the experience of EIG's portfolio managers, the number of accounts
managed by the portfolio managers and EIG's method for compensating portfolio
managers. The Board also considered the experience of senior personnel at EIG.
Based on these considerations, the Board concluded, within the context of its
overall determinations regarding the Subadvisory Agreement, that the Fund is
likely to benefit from the nature, extent and quality of these services as a
result of Madison Square Investors' experience, personnel, operations and
resources.
INVESTMENT PERFORMANCE
In evaluating investment performance, the Board took note of the Fund's
historical investment performance results, as presented to the Board in
connection with the Prior Contract Review Processes, with consideration for the
Fund's investment objectives, strategies and risks, as
28 MainStay Small Company Value Fund
disclosed in the Fund's prospectus. The Board considered information about the
Fund's investment performance that is provided to the Board in connection with
its regularly scheduled meetings, and also took note of information provided in
connection with the Prior Contract Review Processes showing the investment
performance of the Fund as compared to similar mutual funds managed by other
investment advisers. The Board also considered the strength of Madison Square
Investors' resources (including research capabilities). Based on these
considerations, the Board concluded, within the context of its overall
determinations regarding the Subadvisory Agreement, that the selection of
Madison Square Investors as subadviser to the Fund is likely to benefit the
Fund's long-term investment performance.
COSTS OF THE SERVICES TO BE PROVIDED BY MADISON SQUARE INVESTORS
The Board considered the estimated costs of the services and profits to be
realized by Madison Square Investors under the Subadvisory Agreement, taking
into account profitability information provided to the Board in connection with
the Prior Contract Review Processes. Because Madison Square Investors is an
affiliate of New York Life Investments whose subadvisory fees for advising the
Fund will be paid directly by New York Life Investments, the Board considered
the cost and profitability information for New York Life Investments and Madison
Square Investors in the aggregate. In evaluating these estimated costs and
profits, the Board considered, among other things, EIG's investments in
personnel, systems, equipment and other resources necessary to manage the Fund.
The Board acknowledged that Madison Square Investors must be in a position to
pay and retain experienced professional personnel to provide services to the
Fund, and that Madison Square Investors' ability to maintain a strong financial
position is important in order for Madison Square Investors to provide high-
quality ongoing services to the Fund and its shareholders.
The Board also considered certain fall-out benefits that may be realized by
Madison Square Investors due to its relationship with the Fund. The Board
recognized, for example, the benefits to Madison Square Investors from legally
permitted "soft-dollar" arrangements by which brokers may provide research and
other services to Madison Square Investors in exchange for commissions paid by
the Fund with respect to trades on the Fund's portfolio securities.
After evaluating the information presented to the Board, the Board concluded,
within the context of its overall determinations regarding the Subadvisory
Agreement, that any profits realized by Madison Square Investors due to its
relationship with the Fund will be fair and reasonable.
EXTENT TO WHICH ECONOMIES OF SCALE MAY BE REALIZED AS THE FUND GROWS
The Board also considered whether the Fund's expense structure permitted
economies of scale to be shared with the Fund's investors. Based on information
provided to the Board in connection with the Prior Contract Review Processes,
the Board took note of the extent to which the Fund benefits from economies of
scale through expense waivers and reimbursements. The Board also observed that
New York Life Investments historically has subsidized the Fund's overall
expenses through the operation of contractual expense limitations that may be
lifted only with prior approval of the Board.
Based on this information, the Board concluded, within the context of its
overall determinations regarding the Subadvisory Agreement, that the Fund's fee
schedule and expense structure appropriately reflect economies of scale for the
benefit of the Fund's investors. The Board noted, however, that it would
continue to evaluate the reasonableness of the Fund's expense structure as the
Fund continues to grow over time.
MANAGEMENT AND SUBADVISORY FEES AND TOTAL ORDINARY OPERATING EXPENSES
The Board considered the reasonableness of the fees to be paid under the
existing management and new Subadvisory Agreement, and the Fund's total ordinary
operating expenses. The Board considered that the fees to be paid to Madison
Square Investors under the Subadvisory Agreement are paid by New York Life
Investments, not the Fund, and will result in no increase in the Fund's
expenses. The Board noted that New York Life Investments will retain half of its
management fee under the new Subadvisory Agreement with Madison Square
Investors, consistent with the management and subadvisory fee structure used for
other subadvisory relationships between New York Life Investments and its
affiliates.
In assessing the reasonableness of the Fund's management and subadvisory fees
and total ordinary operating expenses, the Board took note of fee and expense
arrangements that had been negotiated by the Board with New York Life
Investments in recent years and observed that New York Life Investments has
subsidized the total ordinary operating expenses of the Fund's share classes
through the imposition of expense limitation arrangements that may be modified
only with the prior approval of the Board.
Based on these considerations, the Board concluded that the Fund's management
and subadvisory fees and total ordinary operating expenses were within a range
that is competitive and, within the context of the Board's overall conclusions
regarding the Subadvisory Agreement, supports the conclusion that these fees to
be paid under the Subadvisory Agreement are reasonable.
mainstayinvestments.com 29
CONCLUSION
On the basis of the information provided to it and its evaluation thereof, the
Board, which consisted entirely of Independent Trustees, unanimously approved
the new Subadvisory Agreement with Madison Square Investors.
BOARD CONSIDERATION AND APPROVAL OF THE NEW SUBADVISORY AGREEMENT WITH MACKAY
SHIELDS LLC
At the same September 25th meeting, the Board approved a Subadvisory Agreement
between New York Life Investments and MacKay Shields LLC ("MacKay") on behalf of
the Fund (the "MacKay Agreement"). The MacKay Agreement provides that MacKay
will manage assets of the Fund as directed by New York Life Investments, and
pursuant to the Fund's registration statements, subject to the approval of the
Fund's shareholders. The Board approved the MacKay Agreement in anticipation of
the merger of the MainStay Small Cap Value Fund with and into the Fund ("Small
Cap Value Fund Merger").
In reaching its decision to approve the MacKay Agreement, the Board considered
information furnished to the Board from New York Life Investments. The Board
also requested and received responses from MacKay to a list of questions
encompassing a variety of topics prepared on behalf of the Board by independent
legal counsel to the Board.
In determining to approve the MacKay Agreement, the members of the Board
reviewed and evaluated all of this information and factors they believed to be
relevant and appropriate in light of legal advice furnished to them by
independent legal counsel and through the exercise of their own business
judgment. The broad factors considered by the Board are discussed in greater
detail below, and included, among other things: (i) the nature, extent, and
quality of the services to be provided to the Fund by MacKay; (ii) the
investment performance of the Fund and the historical investment performance of
similar portfolios managed by the Fund's proposed portfolio management team at
MacKay; (iii) the costs of the services to be provided, and profits anticipated
to be received, by MacKay and New York Life Investments from its relationship
with the Fund; (iv) the extent to which economies of scale may be realized as
the Fund grows, and the extent to which economies of scale may benefit Fund
investors; and (v) the reasonableness of the Fund's management and sub-advisory
fee levels and overall total ordinary operating expenses.
While the members of the Board may have weighed certain factors differently, the
Board's decision to approve the MacKay Agreement was based on a comprehensive
consideration of all the information provided to the Board in connection with
its review of MacKay. A more detailed discussion of the factors that figured
prominently in the Board's decision to approve the new MacKay Agreement is
provided below.
NATURE, EXTENT AND QUALITY OF SERVICES TO BE PROVIDED BY MACKAY
In considering the approval of the MacKay Agreement, the Board examined the
nature, extent and quality of the services that MacKay proposed to provide to
the Fund. The Board evaluated MacKay's experience in serving as manager of other
similar portfolios. In this regard, the Board took note of the significant
experience of the Fund's proposed portfolio management team, the number of
accounts managed by the portfolio managers and MacKay's method for compensating
portfolio managers. The Board also considered the experience of senior personnel
at MacKay, as well as MacKay's reputation and financial condition. Based on
these considerations, the Board concluded, within the context of its overall
determinations regarding the MacKay Agreement, that the Fund is likely to
benefit from the nature, extent and quality of these services as a result of
MacKay's experience, personnel, operations and resources.
INVESTMENT PERFORMANCE
In evaluating investment performance, the Board considered the Fund's historical
investment performance results in light of the Fund's investment objective,
strategies and risks, as disclosed in the Fund's prospectus. The Board noted
that the investment performance of the Fund had not met the Board's expectations
in recent years, as evidenced in part by its investment performance relative to
its peers and its benchmark (the Russell 2000(R) Value Index). The Board
compared the Fund's historical investment performance to the investment
performance of similar portfolios managed by the proposed portfolio management
team at MacKay, as well as the strength of MacKay's resources that may result in
stronger long-term investment performance for the Fund over time. Based on these
considerations, the Board concluded, within the context of its overall
determinations regarding the MacKay Agreement, that the selection of MacKay as
subadviser to the Fund could reasonably be expected to produce to benefit the
Fund's long-term investment performance.
COSTS OF THE SERVICES PROVIDED, AND PROFITS TO BE REALIZED, BY MACKAY AND NEW
YORK LIFE INVESTMENTS
In connection with its considerations of the MacKay Agreement and its past
consideration of the Fund's contractual arrangements, the Board considered the
estimated costs of the services to be provided by MacKay under the MacKay
Agreement and the profitability of New York Life Investments and its affiliates,
including MacKay, due to their relationship with the Fund. Because MacKay is an
affiliate of NY Life Investments whose subadvisory fee for advising the Fund is
paid directly by New York Life Investments, the Board considered the cost and
profitability information for New York Life Investments and MacKay in the
aggregate.
30 MainStay Small Company Value Fund
The Board considered, among other things, MacKay's investments in personnel,
systems, equipment and other resources necessary to manage the Fund. The Board
acknowledged that MacKay must be in a position to pay and retain experienced
professional personnel to provide services to the Fund, and that MacKay's
ability to maintain a strong financial position is important in order for MacKay
to provide high-quality ongoing services to the Fund and its shareholders.
The Board also considered information from New York Life Investments from a
recent 15(c) review process regarding the estimated profitability to be realized
by New York Life Investments and its affiliates, including MacKay, due to their
overall relationship with the Fund. The Board considered information from New
York Life Investments illustrating the revenues and expenses allocated by New
York Life Investments to the Fund, noting the difficulty in obtaining reliable
comparative data about mutual fund managers' profitability, since such
information generally is not publicly available and may be impacted by numerous
factors, including the structure of a fund manager's organization, the types of
funds it manages, and the manager's capital structure and costs of capital.
While recognizing the difficulty in evaluating a manager's profitability with
respect to the Fund, and noting that other profitability methodologies may also
be reasonable, the Board concluded that the profitability methodology presented
by New York Life Investments to the Board with respect to the Fund was
reasonable in all material respects.
In considering the costs and profitability of the Fund, the Board also
considered certain fall-out benefits that may be realized by New York Life
Investments and its affiliates, including MacKay, due to their relationship with
the Fund. The Board recognized, for example, the benefits to MacKay from legally
permitted "soft-dollar" arrangements by which brokers provide research and other
services to MacKay in exchange for commissions paid by the Fund with respect to
trades on the Fund's portfolio securities.
After evaluating the information presented to the Board, the Board concluded,
within the context of its overall determinations regarding the MacKay Agreement,
that the profit to be realized by New York Life Investments and its affiliates,
including MacKay, due to their relationship with the Fund is fair and
reasonable.
EXTENT TO WHICH ECONOMIES OF SCALE MAY BE REALIZED AS THE FUND GROWS
The Board also considered whether the Fund's expense structure permitted
economies of scale to be shared with Fund investors. The Board considered the
extent to which the Fund benefits from economies of scale through expense
waivers and reimbursements. The Board also observed that New York Life
Investments historically has subsidized the Fund's overall expenses through the
operation of contractual expense limitations that may be lifted only with prior
approval of the Board.
Based on this information, the Board concluded, within the context of its
overall determinations regarding the MacKay Agreement, that the Fund's expense
structure appropriately reflects economies of scale for the benefit of Fund
investors. The Board noted, however, that it would continue to evaluate the
reasonableness of the Fund's expense structure as a Fund continues to grow over
time.
MANAGEMENT AND SUBADVISORY FEES AND TOTAL ORDINARY OPERATING EXPENSES
The Board evaluated the reasonableness of the fees to be paid under the existing
management and new MacKay Agreement and the Fund's total ordinary operating
expenses. Because MacKay is an affiliate of New York Life Investments whose
subadvisory fee for advising the Fund is paid directly by New York Life
Investments, the Board primarily considered the reasonableness of the overall
management fees paid by the Fund to New York Life Investments. The Board
considered positively New York Life Investments' proposal to reduce the Fund's
management fee to 85 bps in the event that the Small Cap Value Fund Merger was
consummated.
In assessing the reasonableness of the Fund's management and subadvisory fees
and total ordinary operating expenses, the Board took note of fee and expense
arrangements that had been negotiated by the Board with New York Life
Investments in recent years and observed that New York Life Investments has
subsidized the total ordinary operating expenses of Fund share classes through
the imposition of expense limitation arrangements that may be modified only with
the prior approval of the Board. The Board also considered New York Life
Investments' agreement to impose lower contractual expense caps on the Fund's
expenses in the event that the Small Cap Value Fund Merger was approved.
Based on these considerations, the Board concluded that the Fund's management
and subadvisory fees and total ordinary operating expenses were within a range
that is competitive and, within the context of the Board's overall conclusions
regarding the MacKay Agreement, supports the conclusion that these fees to be
paid under the MacKay Agreement are reasonable.
CONCLUSION
On the basis of the information provided to it and its evaluation thereof, the
Board, which consisted entirely of Independent Trustees, unanimously approved
the new MacKay Agreement with MacKay.
mainstayinvestments.com 31
SPECIAL MEETING OF SHAREHOLDERS
Pursuant to notice, a special meeting of shareholders of the Fund was held on
January 30, 2009 at 11:00 am at the offices of New York Life Investments in
Parsippany, New Jersey.
The purpose of the meeting was to present the following proposal for the
consideration of the MainStay Small Company Value Fund's shareholders:
To approve a Subadvisory Agreement between New York Life Investments and
MacKay Shields LLC ("MacKay Shields") to appoint MacKay Shields as the
subadvisor to the Fund.
The proposal was discussed in detail in the proxy statement related to this
proposal. No other business came before the special meeting. The proposal
was approved by the shareholders of the MainStay Small Company Value Fund
as shown below.
<Table>
<Caption>
SHARE CLASS VOTES FOR VOTES AGAINST VOTES ABSTAIN TOTAL VOTED
Investor Class 241,075.93 3,783.05 13,251.26 358,110
- -----------------------------------------------------------------------------------------------------------
Class A 1,626,172.55 65,814.33 120,611.97 2,762,927.85
- -----------------------------------------------------------------------------------------------------------
Class B 306,713.14 18,671.11 16,182.57 391,408.82
- -----------------------------------------------------------------------------------------------------------
Class C 379,173.58 18,469.53 29,182.68 681,118.79
- -----------------------------------------------------------------------------------------------------------
Class I 7,063,394 71,088.41 523,742.80 7,668,176.89
- -----------------------------------------------------------------------------------------------------------
</Table>
32 MainStay Small Company Value Fund
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
A description of the policies and procedures that New York Life Investments uses
to vote proxies related to the Fund's securities is available without charge,
upon request, (i) by visiting the Fund's website at mainstayinvestments.com; or
(ii) on the Securities and Exchange Commission's ("SEC") website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-
month period ending June 30 on Form N-PX. The Fund's most recent Form N-PX is
available free of charge upon request (i) by calling 800-MAINSTAY (624-6782);
(ii) by visiting the Fund's website at mainstayinvestments.com; or (iii) on the
SEC's website at www.sec.gov.
SHAREHOLDER REPORTS AND QUARTERLY PORTFOLIO DISCLOSURE
The Fund is required to file its complete schedule of portfolio holdings with
the SEC for its first and third fiscal quarters on Form N-Q. The Fund's Form N-Q
is available without charge on the SEC's website at www.sec.gov or by calling
MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review
copies of Form N-Q by visiting the SEC's Public Reference Room in Washington, DC
(information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330).
mainstayinvestments.com 33
MAINSTAY FUNDS
MAINSTAY OFFERS A WIDE RANGE OF FUNDS FOR VIRTUALLY ANY INVESTMENT NEED. THE
FULL ARRAY OF MAINSTAY OFFERINGS IS LISTED HERE, WITH INFORMATION ABOUT THE
MANAGER, SUBADVISORS, LEGAL COUNSEL, AND INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.
EQUITY FUNDS
MAINSTAY 130/30 CORE FUND
MAINSTAY 130/30 GROWTH FUND
MAINSTAY ALL CAP GROWTH FUND
MAINSTAY CAPITAL APPRECIATION FUND
MAINSTAY COMMON STOCK FUND
MAINSTAY EQUITY INDEX FUND(1)
MAINSTAY GROWTH EQUITY FUND
MAINSTAY ICAP EQUITY FUND
MAINSTAY ICAP SELECT EQUITY FUND
MAINSTAY LARGE CAP GROWTH FUND
MAINSTAY MAP FUND
MAINSTAY MID CAP GROWTH FUND
MAINSTAY MID CAP CORE FUND
MAINSTAY MID CAP VALUE FUND
MAINSTAY S&P 500 INDEX FUND
MAINSTAY SMALL CAP GROWTH FUND
MAINSTAY SMALL COMPANY VALUE FUND
MAINSTAY VALUE FUND
INCOME FUNDS
MAINSTAY 130/30 HIGH YIELD FUND
MAINSTAY CASH RESERVES FUND
MAINSTAY DIVERSIFIED INCOME FUND
MAINSTAY FLOATING RATE FUND
MAINSTAY GOVERNMENT FUND
MAINSTAY HIGH YIELD CORPORATE BOND FUND
MAINSTAY INDEXED BOND FUND
MAINSTAY INSTITUTIONAL BOND FUND
MAINSTAY INTERMEDIATE TERM BOND FUND
MAINSTAY MONEY MARKET FUND
MAINSTAY PRINCIPAL PRESERVATION FUND
MAINSTAY SHORT TERM BOND FUND
MAINSTAY TAX FREE BOND FUND
BLENDED FUNDS
MAINSTAY BALANCED FUND
MAINSTAY CONVERTIBLE FUND
MAINSTAY INCOME MANAGER FUND
MAINSTAY TOTAL RETURN FUND
INTERNATIONAL FUNDS
MAINSTAY 130/30 INTERNATIONAL FUND
MAINSTAY GLOBAL HIGH INCOME FUND
MAINSTAY ICAP GLOBAL FUND
MAINSTAY ICAP INTERNATIONAL FUND
MAINSTAY INTERNATIONAL EQUITY FUND
ASSET ALLOCATION FUNDS
MAINSTAY CONSERVATIVE ALLOCATION FUND
MAINSTAY GROWTH ALLOCATION FUND
MAINSTAY MODERATE ALLOCATION FUND
MAINSTAY MODERATE GROWTH ALLOCATION FUND
RETIREMENT FUNDS
MAINSTAY RETIREMENT 2010 FUND
MAINSTAY RETIREMENT 2020 FUND
MAINSTAY RETIREMENT 2030 FUND
MAINSTAY RETIREMENT 2040 FUND
MAINSTAY RETIREMENT 2050 FUND
MANAGER
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
NEW YORK, NEW YORK
SUBADVISORS
INSTITUTIONAL CAPITAL LLC(2)
CHICAGO, ILLINOIS
MACKAY SHIELDS LLC(2)
NEW YORK, NEW YORK
MADISON SQUARE INVESTORS LLC(2)
NEW YORK, NEW YORK
MARKSTON INTERNATIONAL LLC
WHITE PLAINS, NEW YORK
STANDISH MELLON ASSET MANAGEMENT COMPANY LLC
BOSTON, MASSACHUSETTS
WINSLOW CAPITAL MANAGEMENT, INC.
MINNEAPOLIS, MINNESOTA
LEGAL COUNSEL
DECHERT LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
PLEASE CONTACT YOUR INVESTMENT PROFESSIONAL OR CALL 800-MAINSTAY (624-6782) FOR
A FREE PROSPECTUS. INVESTORS ARE ASKED TO CONSIDER THE INVESTMENT OBJECTIVES,
RISKS, AND CHARGES AND EXPENSES OF THE INVESTMENT CAREFULLY BEFORE INVESTING.
THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION ABOUT THE INVESTMENT COMPANY.
PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
1. Closed to new investors and new purchases as of January 1, 2002.
2. An affiliate of New York Life Investment Management LLC.
Not part of the Semiannual Report
<Table>
<Caption>
-----------------------------------------------------
Not FDIC insured. No bank guarantee. May lose value.
</Table>
NYLIFE DISTRIBUTORS LLC, 169 LACKAWANNA AVENUE,
PARSIPPANY, NEW JERSEY 07054
This report may be distributed only when preceded or accompanied
by a current Fund prospectus.
mainstayinvestments.com Eclipse Funds
(C) 2009 by NYLIFE Distributors LLC. All rights reserved.
SEC File Number: 811-04847
NYLIM-AO15924 (RECYCLE LOGO) MS140-09 MSSCV10-06/09
B1
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The Schedule of Investments is included as part of Item 1 of this
report.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on an evaluation of the Registrant's Disclosure Controls and
Procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940) (the "Disclosure Controls"), as of a date within 90 days prior to the
filing date (the "Filing Date") of this Form N-CSR (the "Report"), the
Registrant's principal executive officer and principal financial officer have
concluded that the Disclosure Controls are reasonably designed to ensure that
information required to be disclosed by the Registrant in the Report is
recorded, processed, summarized and reported by the Filing Date, including
ensuring that information required to be disclosed in the Report is accumulated
and communicated to the Registrant's management, including the
Registrant's principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d)) under the Investment Company Act of 1940
that occurred during the second fiscal quarter of the period covered by this
report that has materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not Applicable.
(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2 under the Investment Company Act of
1940.
(b) Certifications of principal executive officer and principal financial
officer as required by Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ECLIPSE FUNDS
By: /s/ Stephen P. Fisher
---------------------------------
Stephen P. Fisher
President and Principal Executive
Officer
Date: July 6, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ Stephen P. Fisher
---------------------------------
Stephen P. Fisher
President and Principal Executive
Officer
Date: July 6, 2009
By: /s/ Jack R. Benintende
---------------------------------
Jack R. Benintende
Treasurer and Principal Financial
and Accounting Officer
Date: July 6, 2009
EXHIBIT INDEX
(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2 under the Investment Company Act of
1940.
(b)(2) Certification of principal executive officer and principal financial
officer as required by Section 906 of the Sarbanes-Oxley Act of 2002.